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June U.S. Manufacturing Expansion Better-Than-Expected

Strength in new orders and production signal strength in the sector in the coming quarters.

TEMPE, Ariz. – For June, the manufacturing sector expanded for the fifth consecutive month and the economy grew for the 68th consecutive month, according to the Institute for Supply Management (ISM) Monthly Report on Business.
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At 56 in June, the manufacturing index was up from May’s 55 and beat analyst expectations of 55.5.
“Following a weak first quarter, the manufacturing sector rebounded in a strong fashion during the second quarter,” said Norbert J. Ore, Chair of the ISM Manufacturing Business Survey Committee. “In June, manufacturing expanded at its fastest pace since April 2006 when the PMI Index registered 56.9. This performance appears sustainable in the third quarter due to the current strength in new orders and production.”
New orders rose to 60.3 from May’s 59.6. Production also saw a significant jump, moving from 58.3 in May to 62.9.
“Supply and demand are in fairly tight balance,” commented Ore
Although the May durable goods report was sluggish, Ore said some durable goods, like primary metals and electronics, saw new order increases in the ISM report. Those increases may be showing the difference between what has happened and what will happen.
The top 12 performing industries for June included Petroleum & Coal Products; Chemical Products, Plastics & Rubber Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Computer & Electronic Products; Paper Products; Fabricated Metal Products; Primary Metals; Miscellaneous Manufacturing; Textile Mills; and Machinery.
Supplier deliveries and inventories both slipped, decreasing to 49.7 and 45.3, respectively. Backlog of orders increased one point to 53.5.
Prices fell three points to 68 as manufacturers continue to pay higher prices. Commodities including aluminum, chemicals, copper based products, gasoline, natural gas, polypropylene resins, soybean oil, stainless sheet steel, stainless steel and steel saw price increases.
Employment dipped slightly from 51.9 in May to 51.1 in June.
Exports and imports both dropped three points to 56 and 54.5, respectively.
“The strong ISM report for June, in tandem with the sluggish durable goods and manufacturing output reports for May, collectively suggest cautious optimism for U.S. manufacturing growth for the balance of 2007 and early 2008,” said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI.  “Indications of lean inventories in the June ISM report are positive signals for manufacturing growth since a part of the factory output slowdown of the past nine months was due to an inventory adjustment to the broad weakness in the housing and auto sectors.
“But weak capital investment that reflects business decision makers uncertainty on the short-term outlook for U.S. growth suggest that the pace of manufacturing activity over the next year will likely be slower than for much of this period of U.S. factory expansion,” he added.
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