US manufacturing contracts in June, first decline since recession

02 July 2012 16:07  [Source: ICIS news]

WASHINGTON (ICIS)--The US manufacturing sector slipped into contraction in June, the first downturn in the broad production industry since July 2009 and the end of the recession, the Institute for Supply Management (ISM) said on Monday.

The nation’s chemicals and plastics industries were among those reporting a decline in June.

The ISM said its closely watched purchasing managers index (PMI) fell by a sharp 3.8 percentage points in June from May to settle at 49.7%.

Month-to-month shifts in the PMI usually are in the 1-1.5 percentage points range.

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.

The PMI had been above 51% for 34 of the 36 months since the end of the recession in June 2009, including a recent peak of 59.9% in January 2011.

Since then, the index has been moderating, falling to 51.4% in July last year, edging back up to 54.1% in January this year before easing to the low-50s recently and now dipping into negative growth for the first time since the recession ended.

Bradley Holcomb, ISM’s manager for the PMI survey, noted that the subsidiary index for new orders for manufactured goods fell by 12.3 percentage points in June, dropping to 47.8%.

That marks the first downturn in the new orders index since April 2009, when the US manufacturing sector was just beginning to pull out of the 2008-2009 recession.

Holcomb said comments from survey participants expressed “concern that demand may be softening due to uncertainties in the economies in Europe and China”.

In addition to contraction reported in the chemicals and plastics industries, ISM said seven other production sectors also were in decline, including some that are downstream consumers of chemicals and resins, such as apparel, paper, computers and electronics, food packaging and transportation equipment.

An unidentified chemicals industry executive was quoted as saying that “Slowing world economies, particularly China, are reducing [third-quarter] and later orders and drastically dropping some raw material prices”.

ISM said the PMI subsidiary index for raw materials prices “decreased significantly for the second consecutive month”, falling by 10.5 percentage points in June from May to a reading of 37%, well below the contraction level.

The materials prices index had dropped 13.5 percentage points in May from April.  The index was at 61% in April, so the June reading of 37% was a full 24 points lower.

An executive in the computer and electronics sector said, “Overall demand signals from sales forecasts are trending down in all regions”.

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

By: Joe Kamalick
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