ISM: U.S. manufacturing growth slowed to a crawl in July

The manufacturing sector has served as one of the lone bright spots in the economic recovery, with growth in such companies expanding over the past few years even as the overall recovery faltered. New data, however, suggests that such growth might be slowing.

The Institute for Supply Management (ISM), which reports on both the manufacturing and non-manufacturing sectors of the U.S. economy, said in its July report on U.S. manufacturing that businesses within the sector reported an overall downturn in demand and production in June.

According to the ISM, manufacturing activity barely edged up in July. Illustrating that the U.S. economy is still struggling to recover from the brutal economic contraction, growth within the sector hit its weakest levels since right after the recession ended, the ISM stated in its report.

In June, U.S. manufacturing activity hit 55.3 percent, but that number dropped off in July. According to data released by the ISM, manufacturing activity in the U.S. declined to 50.9 percent. That figure serves as a stark indicator of the volatility associated with manufacturing and the economic recovery, industry experts assert.

While any figure above 50 generally indicates growth, the low numbers logged in July represent the lowest point the index has hit since July 2009, which was merely one month after the recession officially ended.

Moreover, the drop in manufacturing activity is surprising given that many industry experts had expected growth to pick up during the second half of this year. The Federal Reserve, along with many economists, had forecast that the end of supply chain disruptions emanating from the crisis in Japan would help many businesses to increase their business activity through the latter half of 2011.

However, such projections seem to have been premature. While July represented the 23rd consecutive month of an expansion in the manufacturing sector, growth earlier in the year was more significant. In fact, during the first four months of this year the gauge topped 60 percent.

The latest figures from the ISM come on the heels of reports from the government that the country’s GPD grew at only a 1.3 percent pace during the second quarter of this year.

Many economists were expecting far higher growth. What’s more, GPD growth during the first quarter was downwardly revised to 0.4 percent – an abysmal figure, The Associated Press reports.

On a more granular level, the ISM’s report underscores that certain industries within the manufacturing sector continue to struggle. Soaring commodity costs have prompted a number of businesses to raise prices and that has contributed to a downshift in demand from businesses for certain kinds of equipment.

Of the 18 manufacturing industries tracked by the ISM, 10 reported that their businesses expanded during July. Seven industries said that growth had slowed, with companies that manufacture apparel, plastics, electrical equipment and appliances, among others, suffering from a manufacturing slowdown.

While the July figures have largely been met with dismay by industry watchers, the economy still managed to expand for the 26th consecutive month, according to the ISM report.

"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. Production and employment also showed continued growth in July, but at slower rates than in June," ISM chair Bradley J. Holcomb said.

"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," he added.