10 September 2012 13:47 [Source: ICIS news]
By Joe Kamalick
WASHINGTON (ICIS)--The ?xml:namespace>
Activity in the broad
The Institute for Supply Management (ISM) said that it's closely watched purchasing managers index (PMI) fell just slightly by 0.2 percentage points in August from July to 49.6%, but that decline set the lowest reading for the index since July 2009, just at the end of the 2008-2009 recession.
US manufacturing industries began a period of contraction in June this year when the PMI fell below 50% for the first time in 33 months to 49.7%. The index recovered marginally to 49.8% in July, but it still signalled contraction in production.
The PMI – a long-running gauge of US manufacturing activity – is a composite of supplier responses to the ISM’s monthly survey of 10 different business performance measures in 18 major industrial sectors.
A PMI reading above 50% indicates the
Since manufacturing began to recover with the end of the recession in June 2009, the PMI had been at or above 50% for 33 of 34 months before falling below 50% in June.
Bradley Holcomb, the institute’s survey manager, said that the PMI was pulled lower in August in part by a 0.9-point decline in the component index for new orders for manufactured goods, falling to a reading of 47.1%, also a third month of downturn.
In addition, the component index for production fell by a sharp 4.1 percentage points to 47.2% last month, the first decline in this measure since May 2009 when the
Holcomb said that comments from survey respondents “generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies”.
Among the 18 manufacturing industries tracked by ISM, only eight reported some growth in August, with chemicals production among them. Two industries, plastics being one, were flat during the month while eight others reported declining activity – including many that are major downstream consumers of chemicals and resins.
An unidentified chemicals sector official was quoted as saying that: “Lacklustre demand continues in all regions of the world and is supporting much lower raw materials prices in the second half of 2012”.
It is not going to get better anytime soon.
Further deceleration in manufacturing and the overall US economy is on the horizon, a major industrial group said last week as it again lowered its forecast for the nation’s gross domestic product (GDP) growth this year and next.
In its second downgrade for the US economic outlook since the beginning of the year, the Manufacturers Alliance for Productivity and Innovation (MAPI) said it expects US GDP expansion for full year 2012 will be only 2% and that the nation’s economic growth will slow still further in 2013 to only 1.7%.
In February, MAPI’s economists had forecast 2012 GDP expansion of 2.2% and 2013 growth of 2.4%.
But that outlook was lowered in the alliance’s June appraisal, dropping to 2.1% GDP growth this year and a 2.1% pace for full year 2013.
In just six months, MAPI economists have lowered their estimate for
In normal times, the
MAPI chief economist Daniel Meckstroth said that the nation’s annual growth rate “will decelerate as the pace of business equipment spending slows”.
“While there is pent-up demand for replacing worn equipment, productivity-improving investment and capacity expansion,” he said, “it is uncertainty about the ‘fiscal cliff’, declining business activity in Europe and worries about a hard landing in
The so-called “fiscal cliff” refers to expiration of multiple consumer and business tax cuts at the end of this year and congressionally mandated major reductions in
A recent congressional study warned that unless Congress and the White House can come to terms on legislation to avoid or modify those tax increases and spending cuts, they will trigger a new
Meckstroth noted that while manufacturing output earlier this year expanded at a pace greater than the overall
In the second quarter this year, he said, “manufacturing production grew at only a 1% rate compared to 1.7% for GDP”.
Meckstroth said MAPI expects that going forward, the US manufacturing sector will not show growth rates any better than the overall economy into early 2013, although production should show more strength beginning in the second quarter next year.
But Cliff Waldman, senior MAPI economist, warned in a blog post that “the world economic picture is darkening” and “the probability of a global recession has risen significantly in recent weeks”.
“The eurozone financial and political quagmire continues unabated,” Waldman said, “while economic data from that troubled region indicate a deepening manufacturing downturn and a widening slump.”
“Recent manufacturing data from
Citing the Institute for Supply Management’s purchasing managers index for August, Waldman said that three straight months of contraction in the PMI “testify to fundamental weakness”.
Referring to PMI component indexes showing declines in new orders, the backlog of orders, production and exports, Waldman said that “a sharply slowing global economy and policy uncertainty in the
“Of greater concern than the data is the seeming inability of governments to develop effective solutions,” Waldman said.
“The stability of the 17-country eurozone is hanging by a thread, with little sense of the mature coordinated thinking and action that is needed for the resolution of a difficult crisis,” he added.
Waldman faults policymakers in
“It’s time for leadership,” he said. “A world that is confronting high levels of long-term unemployment and a murky future can afford no less.”
Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy
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