Manufacturing Activity Is Stagnant
U.S. manufacturing unexpectedly contracted in June for a fourth straight month as factories kept inventories low until demand strengthens, an industry report showed Tuesday.
The Institute for Supply Management’s factory index was 49.8 last month compared with 49.4 in May. A reading below 50 signals contraction. Economists had forecast the gauge to rise to 51, the median of 68 forecasts in a Bloomberg News survey.
Inventories shrank the most since March of last year, pulling down the index and suggesting that any increase in manufacturing would be gradual.
Still, there were signs that demand is starting to strengthen, with orders, production and exports accelerating.
“It seems if anything, inventories are a little bit on the lean side,” said Norbert Ore, chairman of the ISM manufacturing committee. “It sets the stage for the second half of the year. I think we should see growth in manufacturing in the second half of the year.”
The Tempe, Ariz.-based supply managers group surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture and plastics.
Manufacturing accounts for about one-seventh of the economy. The ISM index averaged 49.2 over the first six months of the year.
There was faster growth in “new orders and also production, which means going forward we should see the manufacturing sector pick up,” said Arun Raha, senior economist at Cleveland-based Eaton Corp.
The economy is forecast to grow 3.2% at an annual rate in the quarter that began Tuesday, more than double the 1.4% pace of the year’s first three months.
A separate report Tuesday, from Chicago-based placement firm Challenger, Gray & Christmas, showed that U.S. employers announced plans in June to cut 59,715 jobs, the fewest in 31 months and a sign that firings may be abating.
Last month’s announced firings were down 13% from 68,623 in May and 37% less than the 94,766 in June 2002.
Meanwhile, a separate Commerce Department report showed that U.S. construction spending in May unexpectedly fell by the most in a year as wet weather and unused facilities led to declines in housing, business and government investment. Building dropped 1.7% to $869.8 billion at an annual rate after falling 0.6% in April.
Last month’s decline was the third in a row and the largest since 1.7% in May 2002.
Although rainy weather in some parts of the country played a role in May’s decline, it still was the third straight month that construction spending fell.
