The manufacturing sector, which had been a source of stable improvement for 24 straight months, nearly broke that string in July, as this metric, published monthly by the Institute for Supply Management, barely showed any increase at all. It was the latest in a series of disquieting reports, and one more data point that suggests the two-year-old business upturn is at some risk.

Specifically, this report, which as noted, is put out by the Tempe, Arizona-based Institute for Supply Management, registered a July reading of 50.9. That was down from June's result of 55.3. It also was below the 54.6 expectation. It should be noted that a survey result above 50.0 signals that the manufacturing sector is growing; a result between 42.0 and 50.0 indicates that this sector is contracting, but that the economy, overall, is on the upswing. A survey result below 42.0 is consistent with recessionary conditions in the United States.

As noted, the scant advance was the 24th gain in succession for this sector, but one of the smallest increases within this long string of advances. The previous low for this year had been seen in May, when a score of 53.5 had been registered. By comparison, during the first three months of this year, the scores had been 60.8 in January, 61.2 in February, and 60.4 in March. Clearly, this important industrial component is weakening badly, after a fast start in 2011.

As for individual portions of the survey, the compilation showed an actual decline in new orders, with that component easing to a reading of just 49.2 versus 51.6 in June. Production, while increasing last month, slowed its advance from 54.5 to 52.3. Inventories, meanwhile, also declined, falling just below 50.0 at 49.3, while backlogs, which had dropped in June to 49.0, fell further to just 45.0. Employment also was worrisome, as it grew more slowly in July, coming in at 53.5. While that critical area was still showing improvement on an absolute basis, the rate of gain was materially less than in June, when a relatively strong reading of 59.9 had been seen.

As to comments by the nation's purchasing managers, we saw observations ranging from there being a slowdown in the abnormally fast pace enjoyed earlier this year, to observations showing outright softness. Others cite export demand as being strong, but that domestic consumption was slipping. Others saw a general slowdown, while some respondents noted aggregate stability as now being the rule. Finally, some are complaining of a general slowdown in business.

Overall, then, this was not an encouraging survey and its suggests that the Wednesday companion report on non-manufacturing activity will be very closely scrutinized. Expectations are that this report will show little month-to-month change and that the overall survey result will point to modest improvement. That, of course, had been the consensus expectation for the manufacturing survey, which as can be seen was a case of excessive optimism.   

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.