A widely followed gauge of U.S. manufacturing unexpectedly contracted in June for the first time in almost three years amid signs of softness in new orders.
The Institute for Supply Management’s manufacturing index fell to 49.7 from May’s 53.5 reading. A reading below 50 signals contraction. The ISM index had been above 50 since July 2009.
For the first time since July 2009, the June 2012 ISM PMI (Purchasing Managers' Index) fell into contraction as it plummeted 3.8 percentage points from May to 49.7 percent. The June ISM production index sequentially dived 4.6 percentage points to 51 percent - almost to the edge of contraction.
Roll Over Data Points for Exact Figures
Data Included: 6/2012
*Reflects U.S. Department of Commerce annual seasonal formula adjustments.
Source: Institute of Supply Management, "Manufacturing Report on Business," www.ism.ws
Manufacturing has been the most consistent performer in the economy’s uneven recovery from the recession, and been a bulwark of freight transportation activity.
Intermodal rail volume was up 2.8 percent for the first 20 weeks of the year, the Association of American Railroads reported. PIERS data show that containerized imports of auto parts increased 13.7 percent during the year’s first four months, reflecting the auto industry’s return to health.
The most striking number in the latest ISM report was the 12.3-point decline in the new orders index, which registered 46.8, down from 60.1 in May. It was the first reading below 50 for the new orders index since April 2009.
Exports fell to 47.6 from 53.5, and manufacturers’ inventories slipped to 44.0 from 46.0. Customers’ inventories rose to 48.5 from 43.5. A reading below 50 indicates customers’ inventories are considered too low.
Of the 18 manufacturing industries surveyed, seven reported growth in June, led by furniture and related products; printing and support activities; fabricated metal products; miscellaneous manufacturing; electrical equipment, appliances and components; machinery; and primary metals. Nine industrial groups reported contraction.
Daniel Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, noted that the Federal Reserve reported a deceleration in manufacturing activity in March.
He said MAPI expects “little if any” growth in manufacturing production in the second quarter compared with the first quarter. He said the 9.8 percent surge in first quarter production was distorted by the unseasonably warm winter and was unsustainable, and that the worsening euro crisis has pushed the eurozone into recession.
“The June ISM report confirms that manufacturing production is irregular at times; we believe it is downshifting into a slow growth rate for the remainder of this year and into the first half of next year,” he said.