Manufacturing contracted in July for the second time since July 2009, according to the latest Manufacturing Institute for Supply Management Report on Business. The overall economy, however, expanded for the 38th consecutive month.
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The PMI registered 49.8 percent in July, up slightly from June's reading of 49.7. A reading below 50 indicates contraction.
The New Orders Index increased 0.2 percentage point from June, but remained in contraction mode at 48. Both the Production Index and the Employment Index indicated growth at 51.3 percent and 52 percent, respectively.
The Prices Index for raw materials registered 39.5 percent, an increase of 2.5 percentage points from the June reading of 37 percent, indicating lower prices on average for the third consecutive month.
Of the 18 manufacturing industries, seven are reporting growth in July: Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Primary Metals; Petroleum & Coal Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Furniture & Related Products. The 11 industries reporting contraction in July are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Chemical Products; Transportation Equipment; Printing & Related Support Activities; Paper Products; Machinery; and Computer & Electronic Products.
"After an extremely strong start to 2012, the manufacturing sector has braked to nearly a complete stop this summer," says Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). "The reading from the ISM report is indicative of growth that was relatively flat in June and July. Manufacturers cannot escape the limits imposed by the general economy, i.e., wage and salary growth is meager, job growth is weak, and many consumers cannot get credit to spend more than they earn. … MAPI does not believe the U.S. economy or the manufacturing sector will drop into recession; however, we forecast only a relatively modest growth rate for the rest of this year and into the first half of 2013."
