June ISM Report Shows Manufacturing Sector Still Growing, Though At Slower Clip

New orders encouraging, while employment index dips below 50 mark.

Manufacturing activity grew for the 37th straight month in June, and while the pace of that growth was a bit less than in May, a rebound in new orders suggests the U.S. manufacturing sector remains on solid footing.

The latest reading from the Institute for Supply Management shows the group's overall PMI index at 53.8, a slight drop-off from May's 54.4. New orders, however, rose to 57.9 from 53.7 last month, a healthy 4.2% rise.

"Renewed strength in June's new orders index provides encouragement for the third quarter," said Norbert Ore, chair of the ISM's manufacturing Business Survey Committee. "The sector is benefiting from the weaker dollar and business investment. While energy and raw material prices are still a concern, our members indicate that they are coping with the challenges, and generally see their businesses in a continuing growth mode.”

Manufacturing production in June dipped to 55.1 from May's 57.2, while prices paid fell to 76.5 from 77. One troubling aspect of the report came in the employment category, which fell to 48.7 from 52.9. The pullback comes on the heels of 12 consecutive months of growth.

Among the comments from those surveyed:

     "New orders have increased and many are from new customers.” (Chemicals industry)
     "Sales were off the mark in May, which changed the direction of the year as the first four months were extremely positive." (Fabricated Metals)

     "Business activity in the construction industry has slowed down considerably." (Glass, Stone and Aggregate)

     "General conditions remain strong." (Paper)

     "Trucking is getting tighter, and we are spending a lot of time trying to find carriers to pick up loads in a timely manner." (Transportation and Equipment)

Meanwhile, construction spending fell in May by the largest amount in nearly two years as the housing sector continues to cool.

The Commerce Department reported that building activity dropped by 0.4 percent in May to a seasonally adjusted annual rate of $1.206 trillion following a 0.2 percent fall in April. It marked the first time in more than three years that construction spending had fallen for two consecutive months. May represented the biggest one-month decline since a 0.7 percent fall in September 2004.

For May, private residential construction dropped by 0.8 percent to a seasonally adjusted annual rate of $651.2 billion after a drop of 1.2 percent in April.

Nonresidential private construction fell by 0.3 percent in May to a rate of $288.2 billion, reflecting declines in construction of shopping centers, schools and power plants, which was partially offset by increases in the building of hotels and office buildings.

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