U.S. Manufacturing Slows for First Time in 3 Years
Economic activity in the manufacturing sector has slowed, the Institute of Supply Management announced on Monday. After increasing steadily for 34 consecutive months, the institute's Purchasing Managers Index (PMI) fell 3.8 percentage points in June, going from 53.5% in May to 49.7%.
A PMI reading below 50% indicates manufacturing is contracting. The last time the PMI was below 50% was in July 2009, when the PMI came in at 49.2%.
However, a PMI greater than 42.6% over a period time indicates a growing overall economy, and by that measure, the U.S. economy experienced its 37th consecutive month of growth.
The news is troubling given that manufacturing had been a particular bright spot in a U.S. economy still struggling to recover to pre-recession levels.
U.S. manufacturing had experienced a resurgence in recent years as domestic companies began bringing their production back home from overseas.
But the blame for this domestic production slowdown may lie offshore. Jack Plunkett, CEO and founder of Houston-based market research firm Plunkett Research said the PMI decrease is largely due to macroeconomic factors outside the U.S.
"This is part of the global slowdown in manufacturing," Plunkett said. "This is a direct result of very slow markets in Europe, and a slowdown of markets in China, Brazil, and other emerging countries. We are still among the global leaders in aerospace, software, healthcare technology, and heavy manufacturing."
Another potentially negative sign for the manufacturing sector was a stark drops in the institute's New Orders Index and Prices Index. The New Orders Index decreased 12.3 percentage points to 47.8% in June, the first time the number of new manufacturing orders contracted since April 2009. Likewise, the Prices Index had a significant decrease, falling to 37% in June, a 10.5 percentage point decrease. Over the past two months, the Prices Index has indicated a 24% decrease in the cost of raw materials.
While the manufacturing slowdown is no big surprise to Plunkett, it is cause for some alarm.
"We need to see Europe turn it around or we'll be in a continuing negative environment for a while," Plunkett said.
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