US Manufacturing Index Slips Closer to Contraction

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PMI falls to lowest level in two years, but still shows factory growth

The Institute of Supply Management’s U.S. manufacturing index slipped back 0.3 percentage points in August to its lowest point in two years, registering slim growth in the sector despite economists’ forecasts that the measure would turn negative.

The PMI fell back to 50.6 percent, leaving it down nearly 11 points from the 2011 high set in February, ISM said in a report released Thursday that showed “concern and caution” over the direction of the U.S. economy.

But the reading above 50 percent still showed U.S. factory activity growing despite worries of an economic slowdown. The index for new orders also improved 0.4 percentage points, although the reading of 49.6 percent still showed new orders for manufacturers contracting for the second straight month.

By the Numbers: ISM Monthly U.S. Manufacturing Index Vs. ISM U.S. Production Index

The ISM’s measure for production also worsened in August, declining 3.7 percentage points, the lowest reading for that measure since May 2009 and the first contraction in production in 26 months.

Bradley J. Holcomb, chair of the ISM manufacturing business survey committee, said the August results showed uncertainty amid reports of slowing demand in the U.S. and other markets.

“The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers’ confidence and willingness to place orders, at least in the short term,” Holcomb said.

The ISM’s inventories index advanced three percentage points to 52.3 after declining in July, and customers’ inventories also edged up 1.5 points.

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