ISM suggests manufacturing growth has stalled

Following Friday’s anemic GDP number, the ISM survey suggests that manufacturing growth pretty much stalled last month.

The ISM Manufacturing Index, offered by the Institute for Supply Management, declined from 55.3 in June to 50.9 in July, well below the consensus from most analysts of around 54.



To make things worse, new orders turned negative – 51.6 to 49.2 – for the first time since June 2009 when the recession was officially declared to have ended. That suggests further weakness in the short term.

Employment remained positive but is decelerating – 59.9 to 53.5 – and given the weakness in the manufacturing sector, prices paid continued to recede, dropping from 68.0 to 59.0.

Following the downward revisions to GDP in Q4-10, Q1-11 and the weak growth we saw last quarter,  the poor showing by a key survey of manufacturing is clearly disturbing.

This once hot sector – and one of the few bright spots in the economy – has slowed dramatically.
The earthquake in Japan and the subsequent kink in the supply chain has played a role, but other factors are also weighing on growth.

Japanese industrial production, though not fully recovered, is growing at a decent pace, and that should help U.S. manufacturing, especially auto production.

I still believe we will avoid an outright recession this year, but we are perilously close to a growth recession – one in which the economy grows but unemployment rises (that’s already happening) and nonfarm payrolls fall.