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Last Update: 04-Sep-12 10:36 ET
Manufacturing Remains Stuck in a Contraction
According to the national ISM Manufacturing Index, the manufacturing sector remained in contraction for the third consecutive month. The index fell from 49.8 in July to 49.6 in August. The Briefing.com consensus expected the index to increase back to neutral (50.0).
The weakness in the manufacturing sector was foreshadowed by the regional Federal Reserve manufacturing surveys. With the exception of the Kansas City region, all of the regional surveys contracted in August. That included the first pullback in the New York region since October 2011 and the fourth consecutive monthly contraction in the Philadelphia region.
The production index ended its 38-month expansion cycle as the index fell from 51.3 in July to 47.2 in August.
This new trend was expected. For the past few months, production growth came at the expense of order backlogs. The backlog index fell to 42.5 in August from 43.0 in July and is not large enough to support production growth. In order for production to turn positive, growth will need to come from new orders demand. Unfortunately, that index contracted for a third consecutive month, declining from 48.0 in July to 47.1 in August.
Even with the weakness in production, the employment index remained above the 50.0 expansion/contraction threshold. That index fell to 51.6 in August from 52.0 in July. We expect employment levels to contract in the next month or two unless new orders unexpectedly accelerate.
The weakness in the manufacturing sector was foreshadowed by the regional Federal Reserve manufacturing surveys. With the exception of the Kansas City region, all of the regional surveys contracted in August. That included the first pullback in the New York region since October 2011 and the fourth consecutive monthly contraction in the Philadelphia region.
The production index ended its 38-month expansion cycle as the index fell from 51.3 in July to 47.2 in August.
This new trend was expected. For the past few months, production growth came at the expense of order backlogs. The backlog index fell to 42.5 in August from 43.0 in July and is not large enough to support production growth. In order for production to turn positive, growth will need to come from new orders demand. Unfortunately, that index contracted for a third consecutive month, declining from 48.0 in July to 47.1 in August.
Even with the weakness in production, the employment index remained above the 50.0 expansion/contraction threshold. That index fell to 51.6 in August from 52.0 in July. We expect employment levels to contract in the next month or two unless new orders unexpectedly accelerate.
