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 Institute for Supply Management (ISM) index for June 2012:

“The Institute for Supply Management (ISM) reports that its index was 49.7 percent in June 2012, down 3.8 percentage points from 53.5 in May,” Meckstroth noted. “An index level below 50 indicates declining manufacturing activity; therefore, the report shows that manufacturing activity was down slightly in June 2012, the first decline in the index since July 2009. The main drivers of weakness are large reversals in both new orders and exports from having strong growth in May to a decline in June.

“Manufacturing industrial production as reported by the Federal Reserve Board measured the beginning of a deceleration in manufacturing activity back in March 2012,” Meckstroth added. “MAPI expects little if any growth in manufacturing production in the second quarter of 2012 compared to the first quarter. There are several reasons for this spring deceleration: first, production surged in the first quarter (9.8 percent annual rate) and was unsustainable given the relatively slow growth in the overall economy; second, the seasonal pattern in manufacturing is distorted by the exceptionally warm winter; and third, the Euro crisis has become much worse, pushing a major trading partner, the Eurozone, into another recession.

“The June ISM report confirms that manufacturing production is irregular at times; we believe it is downshifting into a slow growth rate for the remainder of this year and into the first half of next year,” he concluded. “Immediately after the November elections Congress needs to deal with the fiscal cliff in order to reduce the uncertainty overhanging business decisions.”