According to the Institute for Supply Management’s (ISM) July Report on Business, economic activity in the manufacturing sector was unchanged during the month, although both new orders and inventories contracted, the group said.
ISM’s PMI is a composite index based on seasonally adjusted levels of five indicators—new orders, production, employment, supplier deliveries and inventories. According to ISM, the manufacturing economy is generally expanding when the index is above 50% and declining when it falls below 50%. July’s PMI was exactly 50%, a slight decrease from the 50.2% measured in June.
"In this month's report, manufacturers indicate no change in overall business activity when comparing July to June,” said Norbert Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “This continues a trend biased toward relatively minor contraction established more than 12 months ago. Manufacturing has maintained a reasonable level of activity during a period in which other sectors of the economy have been in recession.
“While the PMI indicates little to no change has occurred during this period, it would be hard to convince manufacturers who are faced with higher costs and uncertain demand that there is little change taking place,” Ore added.
Although the PMI indicated both production and employment in the manufacturing sector increased during July, new orders fell 4.6% to 45% and inventories dropped 6.2% to 45%, ISM said. In addition, commodities went up for the 19th month in a row, as all 28 commodities measured by ISM increased in price.
The PMI reading of 50% is slightly above the average measured for the past 12 months, which stands at 49.7% after contractions in the market for four straight months, from February through May 2008.
The PMI needs to be above 41.1% to indicate growth in the overall economy, so July’s reading shows the manufacturing sector to be steady but the overall economy on the rise, ISM said.
"The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (49.4%) corresponds to a 2.6% increase in real gross domestic product (GDP),” Ore said. “In addition, if the PMI for July (50%) is annualized, it corresponds to a 2.8% increase in real GDP annually."
According to ISM, six industries reported growth in July-- Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Paper Products; and Chemical Products. Nine industries reported contraction -- Plastics & Rubber Products; Wood Products; Transportation Equipment; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; and Fabricated Metal Products.