Manufacturing declines at slower pace in June

TEMPE, AZ — In a hopeful sign that a string of Federal Reserve rate cuts may finally be doing their job, a widely watched gauge of U.S. manufacturing activity showed some improvement in June, as the manufacturing sector continued to decline for a second straight month, but at a much slower pace than in June.

The monthly barometer of the National Association of Purchasing Managers (NAPM), rose to a level of 44.7 percent in June, up from a more anemic level of 42.1 in May. Any reading below 50 in the NAPM Index indicates a decline in the manufacturing economy, but the June reading suggests the slowdown is finally moderating.

The NAPM Index measures raw material purchasing activity at 400 of the nation's largest companies.

Norbert Ore, head of NAPM's survey activity and purchasing chief at Georgia-Pacific Corp., said, "While the sector continues to struggle, the rate of decline slowed somewhat during the month. It is encouraging that pricing pressures appear to be moderating and inventory liquidation continues to occur at a rapid rate."

NAPM's Prices Index remained below a level of 50 percent as manufacturers paid lower prices for a fourth-straight month after 22 months of higher prices. Backlogs declined for a 14th straight month, and the NAPM's Deliveries Index continued to improve, reflecting faster deliveries. But manufacturing employment continued its long decline in June, and the index fell beneath the break-even point for a ninth-straight month. A major concern is the export market, which failed to grow for a third-straight month.

"The overall picture is one of continued decline in the manufacturing activity during June," said Ore. "The manufacturing sector is in its 11th month of decline. A rebound in the New Orders Index — the rate of decline slowed significantly — is somewhat encouraging, as it tends to lead future production."

In a separate set of data indicating a glimmer of hope for U.S. manufacturing, the U.S. Commerce Department reported that new orders for goods produced in U.S. factories increased in May by 2.5 percent, to a seasonally adjusted level of $343.7 billion, recovering from a 2.4 percent drop in April. The May jump was the third increase in factory orders in the past four months. Orders for durable goods — items ranging from air conditioners to vacuum cleaners — increased by 3.0 percent, following a 5.7 percent decline in April.

Shipments of factory goods rose by 2.6 percent in May, following a 2.4 percent decline in April, taking some pressure off of inventories. With shipments on the rise, inventories fell for a fourth-straight month, declining by 0.3 percent, following a 0.2 percent decline in April. But given the prolonged slowdown in U.S. manufacturing, stockpiles are still about 1.2 percent higher than year-before levels.