Friday, July 6, 2012

US manufacturing stalls

The US manufacturing sector, one of the stronger elements of the US recovery, has stalled. And it seems that not all of it is driven by declines in exports, with domestic demand weakening as well.
ISM Manufacturing Report on Business New Orders SA
GS: - The nearly four-point drop in the US ISM in June marked its second consecutive fall, the biggest month-on-month decline since July 2011, and the weakest level since July 2009. Moreover, the composition of the ISM was particularly weak this month. New Orders, considered the most forward-looking constituent component, fell over 12 points – the largest monthly decline since October 2001, and one of the largest deteriorations on record. The New Exports component also weakened in June, reflecting slowing external demand. But as Andrew Tilton discussed in a recent US Daily, the drop in the New Orders index went well beyond what can be explained by weaker export activity, and therefore implies some deceleration in domestic demand as well.
There is some uncertainty as to the exact causes of the declines in the US manufacturing activity.
NYTimes: - Some of the executives in the manufacturing survey reported that the business seemed to be slowing because of concerns over Europe and sluggish world economies. “Comments from the panel range from continued optimism to concern that demand may be softening because of uncertainties in the economies in Europe and China,” the I.S.M. report said.

The main drivers of the weakness were large reversals in new orders and exports, said Daniel Meckstroth, the chief economist for the Manufacturers Alliance for Productivity and Innovation.

He attributed the deceleration in manufacturing to the inability of the economy to sustain a production surge in the first quarter of the year and to seasonal patterns that were distorted by the warm winter. The worsening of the financial crisis in Europe has pushed United States trading partners in the euro zone into recession, he noted.

“The June I.S.M. report confirms that manufacturing production is irregular at times,” Mr. Meckstroth said in a statement responding to the report. “We believe it is downshifting into a slow growth rate for the remainder of this year and into the first half of next year.”
But there is no question the decline is real and has now nearly caught up on the downside with the weak global growth levels.
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