Monday, June 02, 2008

ISM Manufacturing Index Increases But Continues To Indicate Contraction, Monday, June 02, 2008 10:36:34 AM

Activity in the U.S. manufacturing sector shrank for the fourth consecutive month in May, according to a report released by the Institute for Supply Management on Monday, although the pace of contraction slowed compared to the previous month.

The ISM said its index of activity in the manufacturing sector rose to 49.6 in May from 48.6 in April, although a reading below 50 indicates a contraction in the sector. Economists had been expecting the index to edge down to about 48.5.

The unexpected increase by the index was partly due to a rebound in production, with the production index jumping to 51.2 in May from 49.1 in April. The increase lifted the production index above the key 50 level.

Strength in exports also contributed to the slowdown in the pace of contraction in the sector. The exports index rose to 59.5 in May from 57.5 in April.

`Exports continue strong due to the weak dollar,` said Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee. `Without the weak dollar the story would be much more negative in manufacturing.`

New orders also saw some improvement compared to the previous month, although the new orders index remained below 50. The index rose to 49.7 in May from 46.5 in April.

At the same time, the report showed continued weakness in employment, as the employment index was nearly unchanged at 45.5 in May compared to 45.4 in the previous month.

Additionally, the ISM said that the pace of price growth continued to accelerate in May, with the prices index jumping to 87.0 from 84.5 in the previous month.

Ore noted, `Manufacturers find themselves caught between rising costs and weakening demand in many industries.`

The ISM is due to provide some additional economic data on Wednesday with the release of its report on activity in the service sector. Economists expect the index of activity in the service sector to edge down to 51.0 in May from 52.0 in April.


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