ISM report for July 2009, Contraction Slows, Signs of Life?

The ISM report is out and the PMI index now stands at 48.6%. Anything below 50 is a contraction.


ISM PMI June 2009

There is some good news, bad news contained within this contraction range.

Manufacturing contracted at a slower rate in July as the PMI registered 48.9 percent, which is 4.1 percentage points higher than the 44.8 percent reported in June. This is the 18th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the third consecutive month in the overall economy, and continuing contraction in the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (40.6 percent) corresponds to a 0.2 percent decrease in real gross domestic product (GDP). However, if the PMI for July (48.9 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

So, in other words, this implies we're less in an overall slide but states the United States manufacturing sector, (ya know that one which creates wages where one might actually make rent?) is still getting hammered, just the blows are less frequent. So don't let anyone try to say this shows manufacturing itself is expanding, it's not! (how many kicks does it take to kill a horse? - otherwise known as a contraction is a contraction is a contraction)

Six of the 18 manufacturing industries reported growth in July. These industries — listed in order — are: Nonmetallic Mineral Products; Paper Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. The 10 industries reporting contraction in July — listed in order — are: Machinery; Plastics & Rubber Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Primary Metals.

ISM reports a fantastic quote from industry:

"No stimulus for manufacturing." (Fabricated Metal Products)

Ain't that the truth? What might be a sign of life is new orders. They went above 50 to 55. Below is ISM's table. Note, New Orders was above 50, 51.1 in May. We should note before the recession, manufacturing as a whole has been on life support, so I don't believe one should look at the manufacturing sector just through the 2008/2009 window.

Also, look at the months of contraction, 18 months for PMI, a year for employment and an astounding 39 months for inventories.

What was that about chucking manufacuring out the window by the administration?






PMI 48.9 44.8 +4.1 Contracting Slower 18
New Orders 55.3 49.2 +6.1 Growing From Contracting 1
Production 57.9 52.5 +5.4 Growing Faster 2
Employment 45.6 40.7 +4.9 Contracting Slower 12
Supplier Deliveries 52.0 50.6 +1.4 Slowing Faster 2
Inventories 33.5 30.8 +2.7 Contracting Slower 39
Customers' Inventories 42.5 43.5 -1.0 Too Low Faster 4
Prices 55.0 50.0 +5.0 Increasing From Unchanged 1
Backlog of Orders 50.0 47.5 +2.5 Unchanged From Contracting 1
Exports 50.5 49.5 +1.0 Growing From Contracting 1
Imports 50.0 46.0 +4.0 Unchanged From Contracting 1
OVERALL ECONOMY Growing Faster 3
Manufacturing Sector Contracting Slower 18

*Number of months moving in current direction.

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