Weekly Industry Crib Sheet: U.S. Manufacturing Declines for First Time in 3 Years

Plus: Unemployment Rate Remains Unchanged, Factory Orders Climb, U.S. Disputes Chinese Auto Tariffs and More Workers Suffer from Hearing Loss.

U.S. Manufacturing Shrinks for First Time in 3 Years

The United States manufacturing sector shrank in June, marking the first contraction since July 2009 and raising concerns about the stability of the ongoing economic recovery. According to the Institute for Supply Management's (ISM) latest manufacturing Report on Business, much of the decline was due to "uncertainties in the economies in Europe and China."

ISM's purchasing managers' index (PMI), a key monthly gauge of the factory sector, fell to 49.7 in June, down from 53.5 in May and 54.8 in April. Readings below 50 indicate overall contraction for the industry. The latest PMI was also well below the 12-month average of 52.6. The new orders index also plunged, falling to 47.8 in June, down from 60.1 in May, while production dropped to 51 from 55.6 in May.

"The report is a worrying sign for the economy. Manufacturing had been something of a bright spot during the recovery, and the sector had expanded for 34 months in a row before June," CNN Money reports. "The report is likely to feed worries in the U.S. over slower growth in the second half of the year, as reports on both economic growth and the labor market have been lackluster in recent months."

The economic slowdown in Europe and China is now having a ripple effect across global markets, with U.S. manufacturers experiencing a marked decline in demand from international customers. According to ISM, the exports index plummeted to 47.5 in June, down from 53.5 in May and signaling contraction. However, the employment index has held steady, inching downward to 56.6 from 56.9 the prior month, while supplier deliveries increased to 48.9 from 48.7 in May.

"There are several reasons for this spring deceleration: first, production surged in the first quarter (9.8 percent annual rate) and was unsustainable given the relatively slow growth in the overall economy; second, the seasonal pattern in manufacturing is distorted by the exceptionally warm winter; and third, the Euro crisis has become much worse, pushing a major trading partner, the Eurozone, into another recession," Daniel Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), said in an analysis of the ISM report. "The June ISM report confirms that manufacturing production is irregular at times; we believe it is downshifting into a slow growth rate for the remainder of this year and into the first half of next year."

Unemployment Rate Remains Flat

The U.S. labor market added just 80,000 non-farm jobs in June - nearly a third of them temporary - leaving the national unemployment rate unchanged at 8.2 percent, according to the U.S. Department of Labor on Friday. In addition, job gains for May were revised upward by 8,000, but April's total was revised down by 9,000.

The largest employment gains were in professional and business services, which added 47,000 jobs last month, including 25,000 in temporary help services. Manufacturing added 11,000 jobs in June, led by increases in motor vehicles and parts (7,000) and fabricated metal products (5,000). For the second quarter as a whole, manufacturing averaged 10,000 new jobs per month, down from an average of 41,000 jobs per month in the first quarter.

"The disappointing employment report adds to fresh worries about the U.S. economy at a time when growth is slowing around the world and Washington is gridlocked about how to address the malaise," MarketWatch notes. "The decline in job growth has raised the odds of further Federal Reserve intervention in the economy. The central bank will hold its next major meeting in late July and the Fed could launch a new program to buy bonds to try to drive down interest rates."

Economists estimate that job growth would have to exceed 250,000 each month for several years to drive down the unemployment rate to its pre-recession level. On a more positive note, a separate Labor Department report found that new initial jobless claims fell by 14,000 for the week ending June 30, the largest improvement in two months. The four-week moving average, which smoothes out short-term volatility, fell by 1,500 to a total of 385,750 jobless claims.

Factory Orders Increase

New orders for U.S. manufactured goods increased 0.3 percent in May, following a revised 0.7 percent drop in April and marking the first increase in three months, according to the U.S. Department of Commerce. The total value of new orders climbed by $3.3 billion to a total of $469 billion for the month.

New orders for manufactured durable goods, down in April and March, rose 1.3 percent to $217.4 billion in May. Transportation equipment had the largest gain, rising 2.7 percent to $63.1 billion. Excluding the often-volatile transportation category, new orders rose by 0.4 percent in May for the month, led by a 4.2 percent gain in machinery and a 2 percent increase in household appliances.

"The increase is a welcome sign after two months of declining factory orders," the Associated Press notes. "Still, factory orders are down from the start of the year. And more recent data show manufacturing activity shrank in June for the first time in three years, adding to worries that weaker global growth is weighing on the U.S. economy."

Orders for non-defense capital goods (excluding aircraft), which serve as a key gauge of future business investment plans, increased 2.1 percent after falling 1.5 percent the prior month. Meanwhile, goods shipments rose 0.5 percent to $476 billion, following a 0.2 percent drop in April.

Despite these gains in May, demand for manufactured goods is likely to have fallen in June, considering ISM's recent findings about contraction for the industry as a whole.

U.S. Challenges China on Auto Exports Tariff

The U.S. filed a trade complaint with the World Trade Organization on Thursday over China's steep tariffs on U.S. auto exports. The Obama administration's challenge is an attempt to eliminate unfair anti-dumping and anti-subsidy duties on $3.3 billion in American auto-exports to China and an effort to hold China accountable for unfair practices that do not comply with WTO rules.

China's tariffs fall on U.S.-produced medium and large automobiles, or vehicles with engine capacities of at least 2.5 liters, and affect major automakers, including Chrysler Group and General Motors Co. In total, the trade regulations apply to over 80 percent of U.S. auto exports to China, Reuters reports.

The challenge announcement overlapped with President Obama's Midwest campaign tour that highlighted the administration's support of U.S. automakers.

"As we have made clear, the Obama administration will continue to fight to ensure that China does not misuse its trade laws and violate its international trade commitments to block exports of American-made products," U.S. Trade Representative Ron Kirk said in an official statement. "American auto workers and manufacturers deserve a level playing field and we are taking every step necessary to stand up for them."

The latest trade complaint follows two other WTO cases regarding China's export restraints on rare-earth materials and its policies on various products.  On Friday, China's Ministry of Commerce issued a response to the complaint, stating "China will handle the consultation requests in line with the procedural rules of WTO dispute settlement."

Industrial Workers Under-Report Hearing Loss

A new study reveals that although three-quarters of factory workers claim to have good hearing, nearly half of them actually suffer from hearing loss.

New research from the University of Minnesota School of Nursing found that out of 2,691 noise-exposed factory workers surveyed, 76 percent reported their hearing ability as excellent or good. However, audiometry tests revealed that 42 percent of these workers had suffered from hearing loss.

The workers were from a Midwest automotive factory and had been exposed to volumes of 80 or more decibels of noise at work. Additionally, "workers in this study sample were protected by a workplace hearing conservation program," as per government requirements, the report explained.

This study follows others showing a discrepancy between measured and perceived hearing loss. The demographic that reported the highest hearing loss included older males who had worked at the factory longer, held fewer degrees and reported less use of ear protection.

"This finding shows that even workers who are served by a workplace hearing conservation program and receive annual hearing testing may be unaware of their actual hearing ability," Dr. Marjorie McCullagh, lead author of the study, said in a statement. "Consequently, health care providers would be wise to examine methods to help workers develop more accurate perceptions of their hearing, and test more effective methods to protect it."

 

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