Carr: Manufacturing Report Confirms Stalling US Economy

Friday, 01 Jun 2012 12:42 PM

By Michael Carr

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Investors hoping for good news finally received some when the Institute of Supply Management released their Report on Business for May. The PMI showed that the economy was continuing to expand.

The index was higher in May, marking 36 consecutive months of expansion.

However, it showed a decline from the April reading and was below the expectations of economists surveyed before the report by Bloomberg.

This index is calculated by surveying purchasing managers at manufacturers around the country. It presents the unbiased opinions of the managers at the leading edge of the economy. Economists don’t introduce seasonal adjustments to the data or revise it months later, making this report unusually reliable.

The survey also asks questions about employment, inflation and future business prospects. Results here were also better than expected but generally consistent with a slow economy.

Most companies are not hiring, but only 11 percent are expecting to reduce their work force pointing toward slow changes in future employment reports.

Prices for raw materials are holding steady which is consistent with low inflation. New orders rose slightly, but companies producing consumer products reported declines.

Comments from the purchasing managers emphasized that business conditions are “steady.” Amber Hestla-Barnhart with Hestla Research summarized the report with a statement that describes the overall state of the economy, “Steady means the bills are paid and they will probably be paid in the upcoming months. But it doesn't sound like they are looking to do great for awhile.”

Michael Brown, an economist at Wells Fargo & Co. in Charlotte, North Carolina, sees slow growth prospects for the economy. He told Bloomberg,

“This signals continued moderate economic growth, not any sort of boom or bust. You have the uncertainty in Europe, uncertainty around US fiscal policy and the federal budget for next year.”

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