MAPI Analysis on ISM Index: Manufacturing Has Braked to Nearly a Complete Stop
The following is an analysis from Daniel J. Meckstroth, Ph.D., Vice President and Chief Economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), regarding the ISM Index for July 2012:
“The Institute for Supply Management reports that their Purchasing Managers Index (PMI) was 49.8 percent in July 2012, up slightly from a 49.7 percent reading in June,” Meckstroth said. “The components of the index that changed the most were a reduction in the employment index from 56.6 in June to 52.0 in July and an increase in the inventory index from 44.0 to 49.0. In the PMI calculations, index numbers above 50 percent signify growth.
“After an extremely strong start to 2012, the manufacturing sector has braked to nearly a complete stop this summer,” he added. “The reading from the ISM report is indicative of growth that was relatively flat in June and July. Manufacturers cannot escape the limits imposed by the general economy, i.e., wage and salary growth is meager, job growth is weak, and many consumers cannot get credit to spend more than they earn. There is the opportunity for breakaway spending growth for business investment and exports, but these growth areas have been constrained by the worsening Euro area recession, decelerating growth in emerging markets, and uncertainty about U.S. fiscal policy at year-end.
“MAPI does not believe the U.S. economy or the manufacturing sector will drop into recession; however, we forecast only a relatively modest growth rate for the rest of this year and into the first half of 2013,” he concluded.