ISM Reports Slowdown in Manufacturing
Today's ISM report suggests that economic activity in the U.S. manufacturing sector contracted slightly in June, as the overall ISM manufacturing index (PMI) fell below 50 for the first time since July 2009 (see chart above). However, the direction of both the "manufacturing production" and the "manufacturing employment" sub-indexes are still considered to be "growing" according to the ISM, although both are now listed as "slowing" for the "rate of change." Based on today's report, growth in the overall economy (GDP) could be slowing to 2.4% this year based on May's PMI, but could be as high as 3.5% based on the PMI during the first half of the year. Here are some highlights:
"Manufacturing contracted in June as the PMI registered 49.7 percent, a decrease of 3.8 percentage points when compared to May's reading of 53.5 percent (see chart above). A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI in excess of 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the June PMI indicates growth for the 37th consecutive month in the overall economy, but indicates contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent.
ISM Chair Bradley Holcomb said, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (53 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (49.7 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."