Purchasing Index Signals Slower Growth
U.S. business activity outside of manufacturing grew at a slower rate in June than it did in May, a sign the economy is cooling from its heated pace in the first three months of the year.
The National Assn. of Purchasing Management said its index of non-manufacturing activity fell to 61.5 in June from 64 in May. Still, readings above 50 mean business is expanding, so last month’s index suggests domestic demand is robust even as Asia’s crisis crimped factory output.
“It’s a negative impact on manufacturing, but a positive for the rest of the economy,” said William Cheney, chief economist at John Hancock Mutual Life Insurance Co. in Boston. “The big thing that is happening is, we’re getting a ton of cheap goods.”
The NAPM index measures business in industries ranging from accounting and hotels to education, transportation and zoos. It covers about 70% of U.S. economic activity, with the group’s long-running survey on manufacturing picking up the rest.
Together the two indexes highlight the opposing forces tugging on the economy: strong demand at home and weak demand from the Pacific Rim. Overall, slower inventory growth and the export-slashing effects linked to Asia’s economic slump are working to cool U.S. factory activity.
The manufacturing survey, released last week, showed factory activity contracted in June from May, producing the weakest performance for the factory index in almost two years. The outlook for factory employment for the next six months also weakened.
Taken together, the manufacturing and non-manufacturing reports show the economy is still growing, though at a pace below the first quarter’s rapid 5.4% annual rate.
In another sign of slower growth, the Commerce Department said housing completions fell 3% in May to an annual rate of 1.455 million units, the slowest since January. Starts of new-home construction set records earlier this year, and analysts said inclement weather may have slowed construction during May.
Behind last month’s slower growth in the NAPM’s non-manufacturing index were declines in indexes tracking inventories and prices, with both sliding below 50. In addition, new orders grew at a slower pace in June, and the backlog of existing orders was unchanged after increasing in May.
The U.S. economy built up a record $105.7 billion in inventories in the first quarter, and 40% of purchasing managers polled by the NAPM said they thought their stockpiles of unsold goods were too high. That was up from up from 34% in May.
Within other components of the survey, the new-orders index fell to 59 in June from 63.5 a month earlier. The non-manufacturing price index, meanwhile, fell to 46 in June from 48 in May.
