Manufacturing Sector Contracts At Slower Than Expected Pace In July

on August 03 2009 10:30 AM

RTTNews - While the Institute for Supply Management released a report on Monday showing a continued contraction in manufacturing activity in July, the report also showed notable improvements in new orders and production.

The ISM said its index of activity in the manufacturing sector rose to 48.9 in July from 44.8 in June, although a reading below 50 indicates a contraction. Economists had been expecting a more modest increase to a reading of 46.5.

A turnaround in new orders contributed to the slower pace of contraction, with the new orders index jumping to 55.3 in July from 49.2 in June.

Production also showed a notable improvement, growing at a faster pace compared to the previous month. The production index rose to 57.9 in July from 52.5 in June.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, noted that the moves by the new orders and production indexes significantly above 50 set an expectation for future growth in the sector.

The report also showed that the employment index rose to 45.6 in July from 40.7 in June, but it continues to indicate a drop in employment in the manufacturing sector.

Inventories also continued to show a contraction, although the inventories index edged up to 33.5 in July from 30.8 in the previous month.

The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction, Ore said.

Ore also pointed out that the new export orders index showed growth following nine consecutive months of declines, rising to 50.5 in July from 49.5 in June. He said this suggests that the global economy is recovering.

He added, Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.

On the inflation front, the report showed that the prices index rose to 55.0 in July from 50.0 in June, indicating that prices are on the rise after coming in unchanged in the previous month.

Wednesday morning, the ISM will release its report on activity in the service sector, providing a more complete picture of the state of the economy. The index of activity in the sector is expected to rise to 48.2 in July from 47.0 in June.

For comments and feedback: contact editorial@rttnews.com

More News from IBT MEDIA