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Manufacturing Growth Slow But Strong

Institute for Supply Management reports that manufacturing activity, new orders, production and employment continue to grow, but at a slower rate.

TEMPE, Ariz. – With a PMI of 53.8 percent, manufacturing activity expanded for the sixth straight month in July, according to the latest research by the Institute for Supply Management.
 
“Following a strong second quarter, the manufacturing sector moderated somewhat this past month,” said Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “In July, manufacturing expanded at its slowest pace in the last four months, but continuing strength in new orders and production indicate that third quarter performance should still be quite good. Upward pricing pressures, now in their seventh month, continue to be a major concern for supply managers.”
 
Despite skittish financial markets, inventories are balanced and employment is good, Ore said. For the rest of the year, the sector should see moderate growth, somewhere between the slow first quarter and strong second quarter.
 
“It seems strange with financial markets as they are, but overall, manufacturing is in good shape,” Ore added.
 
The top ten industries reporting growth included Wood Product; Furniture & Related Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Paper Products; Textile Mills; Chemical Products; Computer & Electronic Products; Nonmetallic Mineral Products; and Primary Metals.
 
Aluminum, caustic soda, copper-based products, low density polyethylene, soybean oil, stainless steel and wheat were among the commodities that saw price increases. Gasoline, natural gas, nickel and flat rolled steel were among those that saw price decreases.
 
Despite dropping from 56 in June to 53.8, the PMI still signals growth. At 57.5 and 55.6, respectively, new orders are and production are growing, but at a slower pace.
 
Employment held steady at 50.2, down from 51.1 in June.
 
Supplier delivery times increased from 49.7 to 52, while inventories rose from 45.3 to 48.5. Backlog of orders dipped from 53.5 to 52.
 
Imports remained flat at 54.5 and exports edged up to 56.6 from 56.
 
Prices registered 65 percent, indicating higher prices paid. 
 
“The July ISM report indicates that the U.S. manufacturing sector should continue to grow in spite of the housing bust and jittery financial markets,” said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI. “New orders and production activity, while slower in July than June, indicate that moderately strong export demand is compensating for weak business investment and uncertain consumer spending to allow enough of an orders backlog for U.S. factory growth to continue at a moderate pace for the balance of the year. 
 
“Risks to the factory sector do remain, however,” he added.  “The economic and financial impacts of the housing bust could negatively impact already weak business equipment demand. And while strong global growth and a weakening dollar will allow export demand to act as a continual stabilizer, weak activity in Canadian and Mexican manufacturing could be troublesome for U.S. capital goods exporters in those key markets.”
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