Manufacturing Steadies July Purchasing Index

Don Hogsett, August 5, 2006

A key measure of strength in the manufacturing sector showed unexpected strength during July, and the nation's purchasing managers said their monthly gauge of activity in the nation's factories rose by 0.9% to a reading of 54.7.

Activity in rust-belt America rallied during July after falling off during the two previous months, aided by a pickup in production that followed a spurt in new orders in June, the Institute of Supply Management (ISM) reported. But even with the uptick last month, the trade group's Purchasing Managers' Index still hovers more than a full point beneath its 12-month average of 55.8, and more than three points beneath its high of 58.1 recorded in October 2005.

“Manufacturing growth accelerated in July driven by an upswing in production following June's increase in new orders,” said Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee. “Employment expanded after a one-month decline, while inventories grew after two months of contraction. The overall message is that manufacturing is proving to be quite resilient in the face of higher interest rates and weakening consumer spending.”

Driving last month's gain, the Production component of the monthly index climbed by 2.5% to a current reading of 56.1. Any reading above 50 indicates expansion in the manufacturing sector, while anything beneath that line points to contraction.

But the relief could be short-lived, as New Orders, after ticking up in June, gave back some of that ground and dipped by 1.8% in July. The backlog of orders declined by 3.5%.

Manufacturers continue to be squeezed by the rising cost of supplies and raw materials, and the Prices component of the monthly index climbed by 2.0% to a level of 78.5 after subsiding somewhat in June.

July snapshot
Manufacturing benchmarks
Month-over-month percentage point change

Source: Institute for Supply Management
Purchasing Managers' Index 0.9%
New Orders -1.8
Production 2.5
Employment 2.0
Inventories 3.6
Customers' Inventories -1.0
Prices Manufacturers Pay 2.0
Order Backlogs -3.5
Export Orders -3.5
Imports 1.0

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