Advertisement

Purchasers’ Index Drops Again in June : 2nd Straight Dip Seen as Sign of Continued Cooling of Economy

Share via
From Associated Press

In another sign of an economic slowdown, the nation’s purchasing managers reported Monday that the U.S. manufacturing economy declined in June for the second straight month.

Analysts said the monthly report by the National Assn. of Purchasing Management provided more evidence of an across-the-board economic slackening but not a recession.

“It’s telling us what we’ve already been sensing: that the economy has been growing less rapidly,” said Robert Chandross, chief economist with Lloyds Bank PLC in New York. “But I don’t think it is an indication that would signal we’re in a recession.”

Advertisement

The purchasing managers’ index slumped to 48.8% from 49.7% in May. The decline put the index at its lowest level since July, 1986, when it was 48%. The May decline was the first in 33 months.

New Orders Declined

A reading above 50 indicates that the economy is generally expanding; below 50, that the economy is generally declining. The difference from 50 indicates the intensity of the change.

Production by the nation’s factories was the only indicator to increase, while new orders declined for the first time since May, 1986, and inventories also fell. Vendor deliveries were faster for the second month--a sign of declining demand--after 31 months in which they were reported slower.

Advertisement

“The total economy continued down the path toward slower growth as it ended the second quarter,” said Robert J. Bretz, chairman of the Tempe, Ariz.-based trade group.

“The best news is that inflation appears to be slowing at a faster pace than the overall economy,” said Bretz, director of materials management at Pitney Bowes Inc.

The purchasing managers’ price index fell for the second consecutive month, to 48.5%, down sharply from 57.6% in May and the lowest since it was 42.8% in April, 1986.

Advertisement

It was the first time in 34 months that more purchasers reported price decreases than increases, indicating that inflation may be ebbing.

While the purchasing report surveys only the manufacturing sector and gives equal weight to small and large firms, it is the first economic gauge released each month and generally receives wide attention as an early signal.

The group’s figures are compiled through a monthly survey of purchasing executives at more than 250 industrial companies. The report was released Monday morning for immediate use in a policy change from previous months when it was released on Friday and ordered held for publication until Monday.

The report follows economic news last month indicating further softness.

Orders to factories for manufactured goods slumped 2.7% in May; the key index of leading economic indicators dropped 1.2%, its steepest decline since the October, 1987, stock market crash; durable goods orders plunged at the steepest rate in 10 months, and consumer spending also declined sharply.

Many analysts believe that the declines are consistent with the Federal Reserve’s attempt to engineer a so-called soft landing with slower growth and less inflation that won’t drive the economy into a recession.

“We do expect to see a very slow economy in the next three quarters, but we do not expect to see a recession,” said David Wyss, chief financial economist for DRI-McGraw-Hill Inc. in Lexington, Mass.

Advertisement

2% Growth Seen

The purchasing management group said its overall index has averaged 51.4% for the first half of 1989 but 50.5% for the second quarter. It said the second-quarter figure indicates annual growth of about 2% in the gross national product, the value of all goods and services produced.

The group said the index would have to fall below 44% before signaling a decline in the inflation-adjusted GNP.

New orders declined in June after 48 months of expansion, falling to 47.2% from 53.4% in May. It was the indicator’s lowest level since 47.2% in September, 1984.

Production, though, expanded in June for the 35th straight month, rising to 52.4% from 51.1% in May. Inventories were 49.7%, the nearest level to growth since last December’s 50.8%. The group’s inventories index was 41.9% in May.

The group said 65% of members that use steel plan to increase inventories to guard against possible production slowdowns when labor contracts expire at some mills July 31.

Advertisement