US manufacturing still in decline, but economy grows - ISM

01 July 2009 18:10  [Source: ICIS news]

HOUSTON (ICIS news)--US manufacturing continued to contract during June for the 17th consecutive month, though the overall US economy grew for the second month in a row, a key business survey indicated on Wednesday.

The Institute for Supply Management (ISM) said that its key purchasing managers index (PMI) rose to 44.8 in June.

A PMI of 50 or higher indicates growth in manufacturing industries, many of them key downstream consuming sectors for chemicals and resins. A reading below 50 means that the manufacturing sector is in contraction.

While June's PMI showed that US manufacturing was still in decline, it also indicated that the rate of contraction continued to moderate.

The PMI was at 49.5 a year ago before sinking steadily to a low of 32.9 in December. The index has been making a slow recovery so far this year.

The PMI rose to 35.7 in January and February, then to 36.3 in March, and jumping to 40.1 in April and 42.8 in May. The consistent rises were taken as an improving sign.

"Manufacturing continues to contract at a slower rate," said Norbert J. Ore, head of the institute's survey committee, "The trends in the indexes are encouraging, as seven of 18 industries reported growth in June."

"The prices index was unchanged from May, indicating that the supply/demand balance is improving," Ore added. "Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data."

The PMI is compiled by the institute’s monthly survey of 18 manufacturing sectors regarding their performance in 10 different categories such as new orders, employment, inventories and production rates.

Ore added that the past relationship between the PMI and the overall economy indicated that the average PMI for January through June of 39.2 would correspond to a 0.6% decrease in real gross domestic product (GDP).

The institute noted that the historic relationship between the PMI and the nation's GDP suggested that the June PMI reading translates into a narrow margin of growth for the US economy as a whole.

"If the PMI for June (44.8%) is annualised, it corresponds to a 1.1 percent increase in real GDP annually," Ore said.

Ore also said the June survey indicates that manufacturers’ customers continued to clear out their warehouses.

"Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers' Inventories Index remained below 50% for the third consecutive month," Ore said.

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