US Manufacturing PMI: Evidence that growth in the US is slowing, if not stalling

By Prieur du Plessis, on August 3rd, 2010 posted in: Economy, US

As expected, the ISM Manufacturing PMI for the US slowed from 56.2 in June to 55.5 in July. The number is rather flattering though as new orders declined from 58.5 to 53.5, production decreased from 61.4 to 57.0 and imports fell from 56.5 to 52.5, while the order backlog declined from 57.0 to 54.5. Higher inventories, increased employment and longer supplier deliveries underscored the composite number.

With the Production PMI leading year-on-year growth in manufacturing production, the decline in the production PMI for the third consecutive month does not bode well for manufacturing production growth over the next three months. After reaching a high of 9% in May this year growth in manufacturing production is set to moderate to 5% and lower by the end of the third quarter. That means that manufacturing production in the coming months could actually decline.

Source: I-Net Bridge, Plexus Asset Management.

Further crucial evidence regarding the US economy will be forthcoming on Friday, 6 August with the release of the ISM Non-manufacturing PMI. I expect the number to come in at 51.5/52.0 – somewhat weaker than June’s 53.8. Also, I will not be surprised to see the GDP-weighted PMI falling to the 52.5/53 range from the current 54.36 level. That will imply growth in the US economy has slowed to the 2% to 2.5% range.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.