Dismal Manufacturing Index Reflects Global Slowdown, Poor Sentiment

Monday, 01 Aug 2011 12:00 AM

By Michael Carr

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The July ISM Manufacturing Index fell much more than expected, mirroring the news out of Europe earlier where almost all countries reported contracting economies.

Looking around the world, China may be one of the few bright spots. This index showed that manufacturing is slowing in China, but is still not below 50, the value which separates expansion from contraction.

Among major economies, only the United States and China indexes are consistent with slow expansion.

manufacturegetty200.jpg
Auto-assembly line workers.
(Getty Images photo)
Australia was among the weakest countries according to July data. This is surprising given the country’s large role in global mining. If the trend continues, it could mean that metals production is declining and price spikes in copper, silver, and gold would be the result.

Based on survey results, the ISM data is partly reflecting the gloomy sentiment created in the United States as Washington debated the debt ceiling.

One survey participant noted this, expressing concern that “the looming debt ceiling has government agencies backing away from spending. Forecasting a slowdown in demand in the short term.”

Good news in the report is that “inflation pressures have finally slowed down,” according to another participant's comment. Prices were in fact the weakest component of the report.

Additional good news in the report comes from the employment component. The decrease in this area was due to a slowdown in hiring, rather than layoffs. A majority of industries report they are hiring, but 63 percent reported that they are doing so at the same slow pace they were a month ago.

Overall, the data is consistent with a slow growing economy.

The uncertainty created by the debt-ceiling debate may have caused the steep decline in the index. If that’s the case, a strong recovery in August must be seen in the next report.

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