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Manufacturing Activity Grows at a Slower Rate

While the manufacturing sector still seems to be moving in the right direction, growth has slowed somewhat in the last few months, a sign that the second half of the year may see more moderate growth.

Thursday, the Institute for Supply Management said its index of manufacturing activity (PMI) for June was down 3.5 percent from May to a reading of 56.2, compared to 59.7 in May. However, any reading above 50 indicates growth in the sector. June marks the 11th straight month of growth in the index.

"The manufacturing sector continued to grow during June; however, the rate of growth as indicated by the PMI slowed when compared to May," said Norbert Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The lower reading for the PMI came from a slowing in the New Orders and Production Indexes. We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time. The sector appears to be solidly entrenched in the recovery. Comments from the respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast."

In June, 13 of the 18 manufacturing industries reported growth. While respondents said component lead times are increasing and retail sales are strong, they also said the market has begun to decline and conditions continue to be sluggish.

Meanwhile, new orders for manufactured goods dropped 1.4 percent, or $5.8 billion, in May, according to a report released by the U.S. Census Bureau Friday. This follows eight consecutive monthly increases, including April's 1 percent boost.

Durable goods orders were down 0.6 percent to $192.9 billion, after five straight increases. Transportation equipment had the largest decrease at 6.9 percent. New orders for nondurable goods slipped 2.1 percent, or $4.6 billion, to $220.4 billion in May.

Shipments fell 1.3 percent to $416.8 billion from April to May, following two straight monthly increases. In April, shipments were up 0.6 percent.

Inventories of durable goods saw a 0.9 percent boost in May, landing at $304.7 billion, following April's 0.8 percent boost. Nondurable goods inventory fell 2.1 percent to $215.7 billion, the Census Bureau reported. This follows a 0.4 percent increase in April.

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