US manufacturing in much slower decline, economy expanding - ISM

03 August 2009 16:24  [Source: ICIS news]

HOUSTON (ICIS news)--US manufacturing continued to shrink during July for the 18th consecutive month, but the overall US economy grew for the third month in a row, a key business survey showed on Monday.

The Institute for Supply Management (ISM) said that its key purchasing mangers index (PMI) rose to 48.9 in July, up from 44.8 in June and near the break-even point of 50.

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.

The index sunk to a low of 32.9 in December before making a slow recovery so far this year. The PMI rose to 35.7 in January and February, then to 36.3 in March, 40.1 in April and 42.8 in May.

The consistent rises were taken as signs of improvement.

"The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI — the new orders and production indexes – rose significantly above 50 percent, thus setting an expectation for future growth in the sector,” said Norbert Ore, head of the institute’s survey committee.

“The data suggests that we will see growth in the third quarter if the trends continue,” he added.

The new orders index surged to 55.3, up 6.1 from 49.2 in June. The production index rose to 57.9, up 5.4 from 52.5 in June. Both figures indicated expansion.

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.

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

“If the PMI for July (48.9%) is annualised, it corresponds to a 2.4% increase in real GDP annually,” Ore said.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Ben DuBose
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