July 2011 ISM Reports

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The pace of growth in manufacturing slowed almost to a standstill in July, with the Institute for Supply Management’s (ISM) PMI falling to 50.9 percent, from 55.3 in June (50 percent is the breakpoint between contraction and expansion); it was the weakest reading in two years. "The PMI registered 50.9 percent, a decrease of 4.4 percentage points, indicating expansion in the manufacturing sector for the 24th consecutive month, although at a slower rate of growth than in June,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. "Production and employment also showed continued growth in July, but at slower rates than in June. The New Orders Index registered 49.2 percent, indicating contraction for the first time since June of 2009…. The rate of increase in prices slowed for the third consecutive month, dropping 9 percentage points in July to 59 percent. In the last three months combined, the Prices Index has declined by 26.5 percentage points, dropping from 85.5 percent in April to 59 percent in July. Despite relief in pricing, however, several comments suggest a slowdown in domestic demand in the short term, while export orders continue to remain strong."

Wood and Paper Products both reported growth, although Wood Products’ growth was limited to new orders. Paper Products’ improvement, by contrast, encompassed new export and domestic orders, the need to replenish inventories, and increases in production and employment. One Paper Products respondent wrote that "export sales very strong, while domestic sales are sluggish."
 

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The non-manufacturing sector also grew at a somewhat slower pace in June, reflected by a 0.6 percentage point drop (to 52.7 percent) in the non-manufacturing index (now known simply as the “NMI”). "According to the NMI, 13 non-manufacturing industries reported growth in July,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “Respondents' comments remain mixed; however, for the most part they indicate that business conditions are flattening out." Two of the three service industries that we track expanded: Real Estate, Rental & Leasing; and Agriculture, Forestry, Fishing & Hunting. "Sales volumes are steady; input costs are increasing," one Ag & Forestry respondent indicated. Another relevant comment came from Wholesale Trade: "New home construction is still very slow; repair and remodel is the only bright spot."

As the table above indicates, the rate of input price increases slowed for both the manufacturing and service sectors. The index of prices paid by manufacturers tumbled by 9.0 percentage points, to 59.0 percent; non-manufacturers saw a smaller drop of 4.3 percentage points, to 56.6 (50 is the breakpoint between rising and falling prices).

Several relevant commodities were up in price during July: construction labor and paper products (including paper and copy paper) was listed as up in price; some respondents indicated paying more for diesel fuel and gasoline while others paid less. No relevant commodity was described as in short supply.