The Institute for Supply Management May 2009 Manufacturing ISM Report On Business® shows manufacturing in the US contracted for the 16th consecutive month, but at a lower rate.
Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, while the overall economy grew for the first time following seven months of decline, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.
“While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement. May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth. New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008. Also, the Customers’ Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers’ inventories as ‘too low’. The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April.”
PERFORMANCE BY INDUSTRY
Five of the 18 manufacturing industries reported growth in May. These industries — listed in order — are: Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; and Printing & Related Support Activities. The industries reporting contraction in May — listed in order — are: Textile Mills; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; Wood Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Chemical Products; Petroleum & Coal Products; and Paper Products.
Chinese Manufacturing Expands Third Month
Bloomberg is reporting Chinese Manufacturing Grows, Adding to Recovery Signs.
China’s manufacturing expanded for a third month, driving stocks to the biggest gain since March and adding to evidence that the economy is recovering.
The official Purchasing Manager’s Index was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.
A surge in lending and investment and rising retail sales have spurred confidence that Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is reviving growth in the world’s third-biggest economy. U.S. Treasury Secretary Timothy Geithner said today that the global recession may be easing, helped partly by China’s “very forceful” measures.
“The Chinese economy is well on track for recovery and economic growth is picking up steam,” said Lu Ting, an economist at Merrill Lynch & Co. in Hong Kong.
China’s economic growth may accelerate to 6.8 percent this quarter from 6.1 percent in the first three months, according to a Bloomberg News survey of economists.
Bear in mind that China needs growth faster than 7% to prevent a mass exodus of Chinese workers back to the farms. For details please see Yellow Brick Road Economic Theory.
Also note that $586 billion of Chinese stimulus went directly into production. US stimulus went to bail out banks and to keep zombie corporations alive. If you throw enough money around, some people will eventually spend it, but attitudes have otherwise generally changed. As soon as the stimulus stops so will the spending (if not before).
Investment demand for housing is picking up in the US as noted in Buying Frenzy In Phoenix. However, that demand is widely scattered and unsustainable with unemployment soaring.
If there is pent up demand for anything it is pent up demand to foreclose. Various foreclosure moratoriums will be ending and a flood of new housing supply will come in the wake. Investment demand for housing will soon be swamped by new supply.
With this amount of structural weakness, it remains to be seen how much more stimulus can be forced down the global economy’s throat before it overheats. That, not green shoots is the real message behind rising treasury yields.
Mike “Mish” Shedlock
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