U.S. Manufacturing Expanded in June

July 5, 2007

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Activity at the nation's factories, plants and utilities expanded modestly in June while price pressures eased, marking the fifth consecutive month of growth for manufacturing industries and the 68th consecutive month of growth for the overall economy, according to the latest monthly ISM report. New orders, production and employment contributed to growth, while inventories supported some contraction.

Economic activity in the manufacturing sector expanded in June for the fifth consecutive month, while the overall economy grew for the 68th consecutive month, according to the latest Manufacturing ISM Report On Business, based on data compiled from purchasing and supply executives nationwide.

"Following a weak first quarter, the manufacturing sector rebounded in a strong fashion during the second quarter. In June, manufacturing expanded at its fastest pace since April 2006 when the PMI Index registered 56.9," according to Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee, who issued the report this week.

The Institute for Supply Management said this week that in June manufacturing expanded at its fastest pace since April 2006 when the PMI Index registered 56.9.

"This performance appears sustainable in the third quarter due to the current strength in New Orders and Production," Ore said in the announcement.

ISM's New Orders Index rose to 60.3 percent in June; that is a 0.7 percentage point higher than the 59.6 percent reported in May. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders, in constant 2000 dollars.

Eleven industries reported increases during June: petroleum and coal products; plastics and rubber products; nonmetallic mineral products; chemical products; food, beverage and tobacco products; primary metals; fabricated metal products; miscellaneous manufacturing; computer and electronic products; paper products; and machinery.

According to the United States Census Bureau a week ago, new orders for manufactured durable goods in May decreased $6.1 billion, or 2.8 percent, to $213 billion. This followed three consecutive monthly increases, including a 1.1 percent increase in April.

In June ISM's Production Index registered 62.9 percent, which is 4.6 percent higher than the Production Index reported for May. That makes June the fifth consecutive month of production growth for U.S. manufacturers, according to ISM.

Of the industries reporting last month, 12 registered growth: nonmetallic mineral products; chemical products; food, beverage and tobacco products; paper products; plastics and rubber products; computer and electronic products; fabricated metal products; primary metals; machinery; transportation equipment; miscellaneous manufacturing; and furniture and related products.

Prices for raw materials including aluminum, chemicals, gasoline and steel continued climbing, though at a more moderate pace than the month prior. The index for prices paid was 68 in June, down from 71 in May.

Commodities up in price include the following: chemicals; copper-based products; gasoline; natural gas; polypropylene resins; soybean oil; stainless sheet steel; stainless steel; and steel.

Aluminum is the only commodity reported down in price. No commodities are reported in short supply.

ISM reports:

Manufacturing growth accelerated in June as the PMI registered 56 percent, an increase of 1 percentage point when compared to May's reading of 55 percent. 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 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that both the overall economy and the manufacturing sector are growing.

Although employment was down by one percent, five industries reported needing more workers. The hiring industries included petroleum and coal products; chemical products; computer and electronic products; food, beverage and tobacco products; and primary metals, according to the ISM Report.

In contrast, the latest Society for Human Resource Management (SHRM)/Rutgers LINE Index points to weaker hiring in manufacturing over July 2006 data, while hiring in the service sector remains flat over the same time frame.

Deliveries advanced by 0.6 percent, ending a trend of increasingly longer delivery time periods that had lasted for 47 consecutive months," according to the ISM report. Manufacturers' inventories registered 45.3 percent in June, a 0.8 percentage point decrease when compared to May's reading of 46.1 percent. This trend has continued for 11 months.

"Manufacturing appears to be providing a counterweight to the weakness in housing," Reuters recently quoted Kevin Flanagan, a fixed income strategist for Global Wealth Management, Morgan Stanley, as having said.

"The U.S. economy would probably be in recession except for the fact that the global economy is still hopping, particularly in Asia, with very strong growth," Ned Davis of the Ned Davis Research Group told The Chicago Tribune, suggesting that what appears to be economic growth from American companies is actually growth due to holdings from companies' overseas operations.

"Among S&P 500 companies reporting profits from non-U.S. operations, 48 percent of total company pretax profits last year came from outside the United States," noted market reporter Bill Barnhart.

The U.S. economy was weak in the first quarter, "but if you're getting half your earnings from areas that are booming, it helps," Davis said.



Reuters, via NYT

AP, via NYT

Chicago Tribune

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