Tags: Manufacturing | Activity | economy | us

Manufacturing Activity Has Largely Lost Its Mojo

Wednesday, 01 August 2012 12:55 PM

INDICATOR: July Supply Managers’ Manufacturing Index

KEY DATA: ISM (Manufacturing): 49.8 (up 0.1 percent pt.); Orders: 48.0 (up 0.2 percent pt.)

IN A NUTSHELL: “Manufacturing activity has largely lost its mojo. That is another sign that the economy is not picking up any steam.”

WHAT IT MEANS: The industrial heartland had been doing all the heavy lifting when it came to driving the economy forward. Right now, that sector looks a bit tired. For the second consecutive month, the Institute for Supply Management’s manufacturing-activity index came in below 50, the cut line for growth. It has been three years since we saw two months in a row of declining activity and that was when the sector was finally coming out of the recession.

This time, the data are showing a deceleration in activity. While production has picked up, orders keep declining. That is not good news for future activity. Employment is still growing, but more slowly — not that it has been robust lately. Another sign of a slowing economy was the moderation in imports. Not surprisingly given the problems in Europe, export activity is fading even faster than it had been.

MARKETS AND FED POLICY IMPLICATIONS: It is never good news when we see a stellar part of the economy faltering. Even though housing is coming back, it may not grow fast enough to pick up the slack.

Ultimately, we need incomes to grow and consumers to spend that money.

Friday, we will see if job gains have accelerated, which would imply more money flowing into households. But early indications are that July vehicle sales did not pick up from the June pace. That would mean any help from the automotive sector will be minimal. Thus, we may be starting off the third quarter where we left off in the second quarter: modest growth.

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Wednesday, 01 August 2012 12:55 PM
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