Two surveys released this morning both show weaker manufacturing activity, continuing an ongoing trend. Anxieties about Europe and slowing growth in the U.S. and elsewhere appear to have dampened overall enthusiasm among many in the manufacturing community.
First, the Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed contracting activity in its region. The composite index of general business conditions was negative for the second month in a row, as the net percentage of respondents viewing their conditions favorably dropped from -5.8 in May to -16.6 in June.
Many of the measures reported lower levels of activity. For instance, the net percentage of those reporting increased new orders fell from -1.2 to -18.8. To arrive at this figure, just 21.4 percent said that they were experiencing increased new orders, with 40.2 saying that their new sales were declining. Similar trends were seen in shipments, delivery times, and the average workweek. Net hiring remained positive but only barely. Almost three-fourths of manufacturers report no changes in their employment.
Despite this drop in current confidence, manufacturers remain mostly cautiously optimistic about future production. In fact, 45.5 percent of them anticipate increased new orders in the next six months, with just 7.3 percent expecting them to be lower.
As such, these businesses are more upbeat about shipments, employment and capital spending moving forward. Interestingly, most of these measures were higher in this survey, a solid contrast from the more pessimistic view of the current environment.
Meanwhile, the Markit Flash U.S. Manufacturing Purchasing Managers Index (PMI) suggest that manufacturers are expanding at a slower rate in June, with the index down from 54.0 in May to 52.9 in June. This “flash” data point includes advance measures for the final PMI data, expected to be released on July 1, as it includes 85 to 90 percent of the total responses.
It finds that the pace of new orders, exports and employment eased somewhat this month. Inventory levels continued to contract, both for raw materials and finished goods. In addition, pricing pressures lessened with both input and output prices lower. Markit Chief Economist Chris Williamson attributes the lower growth rates to “falling demand in the Eurozone and weaker economic growth in other export markets, including emerging markets such as China.”
The data from these two indicators shows the strong need for more pro-growth policies from Washington to boost manufacturing in order to keep it driving our economic recovery. Slowing global growth and a number of uncertainties about economic growth are weakening the demand for manufactured goods, threatening what has been one of the bright spots in our economic recovery.
Chad Moutray is chief economist, National Association of Manufacturers.
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