Manufacturing gauge higher than expected
[2008-6-5]
Tag: american petroleum institute
Although a faltering national economy kept U.S. manufacturing under heavy pressure last month, booming export markets -- fueled by the weak dollar -- allowed the sector to perform modestly above expectations, a closely watched trade-group report revealed Monday.
The Institute for Supply Management said its manufacturing index firmed by a full point in May, rising to 49.6 from April's dismal 48.6 reading.
Given the woes in the U.S. housing and auto segments, as well as consumers' growing caution about spending on other goods, experts had been expecting the index to stand still or even worsen.
At 49.6, the ISM report suggests "the forces for increase for American manufacturing are approximately in balance with the forces for decline," said ClearView Economics head Ken Mayland.
To some observers, the upside performance of the manufacturing report provided welcome additional evidence that the U.S. economy, while clearly staggering, may yet avert a full-scale recession.
The latest index reading is "soft, but not catastrophic," observed High Frequency Economics' Ian Shepherdson.
Under the Institute's format, a reading above 50 suggests the manufacturing sector is expanding, while a below-50 number indicates contraction. May marked the fourth consecutive month in which the sector was shrinking, but at 49.6 the rate of decline was barely perceptible.
Still, acknowledged ISM survey chief Norbert Ore, "without the weak dollar the story would be much more negative in manufacturing."
When the dollar weakens in relation to other currencies such as the Euro and the British pound, goods made in the U.S. become cheaper to foreign buyers. Combined with still robust economic growth in many other parts of the globe, the dollar's tumble has spurred a big surge in American manufacturers' export sales in the past two years.
"The substantial decline in the value of the dollar is acting as a counterweight to the depressed situation in the United States' housing, motor vehicle and consumer product markets," noted Daniel Meckstroth, chief economist for the Manufacturers alliance/MAPI trade information group.
Unfortunately, Meckstroth continued, another result of the dollar's fall and the ongoing rapid growth in many developing countries has been "skyrocketing" prices for commodities such as petroleum, metals and other key industrial inputs. Because it is difficult to pass such higher costs along to U.S. consumers, he said, as time passes the result will be shrinking profit margins for U.S. manufacturers.
The current boom in offshore demand will last only as long as the dollar remains cheap, a condition that isn't likely to remain in place longterm.
Exports are making a solid contribution to U.S. manufacturers' resilience, suggested Citigroup economist Steven Wieting, before cautioning that "we wouldn't be entirely confident in the durability of this export vigor beyond 2008."
The ISM index is composed of a variety of different indicators, such as new orders, employment trends, inventory levels, order backlogs and the like.
Although a faltering national economy kept U.S. manufacturing under heavy pressure last month, booming export markets -- fueled by the weak dollar -- allowed the sector to perform modestly above expectations, a closely watched trade-group report revealed Monday.
The Institute for Supply Management said its manufacturing index firmed by a full point in May, rising to 49.6 from April's dismal 48.6 reading.
Given the woes in the U.S. housing and auto segments, as well as consumers' growing caution about spending on other goods, experts had been expecting the index to stand still or even worsen.
At 49.6, the ISM report suggests "the forces for increase for American manufacturing are approximately in balance with the forces for decline," said ClearView Economics head Ken Mayland.
To some observers, the upside performance of the manufacturing report provided welcome additional evidence that the U.S. economy, while clearly staggering, may yet avert a full-scale recession.
The latest index reading is "soft, but not catastrophic," observed High Frequency Economics' Ian Shepherdson.
Under the Institute's format, a reading above 50 suggests the manufacturing sector is expanding, while a below-50 number indicates contraction. May marked the fourth consecutive month in which the sector was shrinking, but at 49.6 the rate of decline was barely perceptible.
Still, acknowledged ISM survey chief Norbert Ore, "without the weak dollar the story would be much more negative in manufacturing."
When the dollar weakens in relation to other currencies such as the Euro and the British pound, goods made in the U.S. become cheaper to foreign buyers. Combined with still robust economic growth in many other parts of the globe, the dollar's tumble has spurred a big surge in American manufacturers' export sales in the past two years.
"The substantial decline in the value of the dollar is acting as a counterweight to the depressed situation in the United States' housing, motor vehicle and consumer product markets," noted Daniel Meckstroth, chief economist for the Manufacturers alliance/MAPI trade information group.
Unfortunately, Meckstroth continued, another result of the dollar's fall and the ongoing rapid growth in many developing countries has been "skyrocketing" prices for commodities such as petroleum, metals and other key industrial inputs. Because it is difficult to pass such higher costs along to U.S. consumers, he said, as time passes the result will be shrinking profit margins for U.S. manufacturers.
The current boom in offshore demand will last only as long as the dollar remains cheap, a condition that isn't likely to remain in place longterm.
Exports are making a solid contribution to U.S. manufacturers' resilience, suggested Citigroup economist Steven Wieting, before cautioning that "we wouldn't be entirely confident in the durability of this export vigor beyond 2008."
The ISM index is composed of a variety of different indicators, such as new orders, employment trends, inventory levels, order backlogs and the like.
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