U.S. manufacturing shrinks for second month

August 1, 2012

The closely watched Institute of Supply Management’s nationwide manufacturing index showed contraction in manufacturing for the second month in a row in July and Bradley Holcomb, chairman of the ISM’s business survey committee, sounded equally subdued in a morning teleconference.

An overall softening and flattening is going on. It’s a reflection of the overall state of the global economy.

New orders for manufactured goods also shrank for the second straight month, and backlogged orders fell for the fourth straight month. Prices weakened for the third month. Said Holcomb:

Generally speaking, (respondents’) comments reflected a pretty broad-based softening of business.

Only three of 18 industries showed gains in new orders. Thirteen reported declines, Holcomb noted.

It’s new orders that really drive the system so it’s the new orders that’s something to watch at this point. With backlogged orders also down for the fourth consecutive month, I’d be concerned about production staying positive.

The U.S. ISM index read 49.8 in July versus 49.7 in June. A reading below 50 indicates contraction. Analysts polled by Reuters had forecast a rise to 50.2.


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