US manufacturing near stall point, production contracting

01 September 2011 16:31  [Source: ICIS news]

WASHINGTON (ICIS)--US manufacturing growth slowed further in August, the Institute for Supply Management (ISM) said on Thursday, falling to a pace not seen since the recession and with production slipping into contraction for the first time since May 2009.

The institute said that its closely watched purchasing managers index (PMI) fell by 0.3 of a percentage point in August from July, settling at 50.6% for the month just ended.

Bradley Holcomb, chairman of the institute’s survey committee, said that the overall sentiment among US manufacturers “is one of concern and caution over the domestic and international economic environment, which is affecting customers’ confidence and willingness to place orders”.

The PMI is a composite of supplier responses to the ISM’s monthly survey of 10 different business performance measures in 18 major manufacturing sectors.

A PMI reading above 50% indicates the US manufacturing sector is expanding, while an index measure below 50% means production is contracting.

Since the end of the recession, the PMI has been above 51% for 23 months, including a recent peak of 61.4% in February this year.  

But the index has been trending generally down since February.

The August PMI reading of 50.6% puts the manufacturing sector just barely above the contraction level.  It is the lowest PMI measure since the 49% recorded in July 2009 when the US economy was just beginning to pull out of the recession.

Within the ten subsidiary business measures that make up the PMI composite score, the institute said that the production index fell to 48.6% in August from July’s reading of 52.3% – the first time that gauge has shown contraction since May 2009 during the last stages of the recession.

Holcomb also noted that two other key subsidiary measures, the new orders index and the backlog orders index, edged up slightly in August from July, “but both indexes are indicating contraction in August”.

Within the 18 tracked manufacturing industries, the institute said that chemicals showed continued if modest expansion in August, but plastics and rubber products were among the six production sectors reporting contraction last month.

An unnamed executive in the machinery production industry told the institute that “Business is soft, confidence is down, and we are cutting inventory and expenses”.

A transportation equipment manufacturer said: “Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers’ willingness to commit to high-dollar equipment.”

The machinery manufacturing and transportation equipment sectors are among key downstream consuming industries for chemical producers.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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