From Forest2Market's Economic Outlook. Manufacturing has been a “star” during the past few years for its role in helping to pull the U.S. economy out of the recessionary ditch. Industrial production at the total manufacturing level has marched upward at a fairly steady pace since the recession ended in June 2009, and in May was nearly 20 percent higher than the recessionary trough. Capacity utilization was homing in on 78 percent – nearly halfway between the levels generally accepted as indicating recession (i.e., less than 70) or overheating (i.e., greater than 85). Finally, although forest products manufacturing has not followed suit, total manufacturing capacity has been rising since March 2011.
The Institute for Supply Management’s (ISM) PMI contracted slightly in June (see table). On the heels of widespread bad news from the regional business and manufacturing reports (especially the Philly Fed factory gauge and Empire State index), the ISM’s PMI dropped to 49.7 percent in June, from 53.5 in May (50 percent is the breakpoint between contraction and expansion). “Comments from [survey respondents] range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee.
New orders – the forward-looking part of the Census Bureau’s manufacturing data –fell 12.3 percentage points to 47.8 in June (from 60.1 in May). This represents a contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent.
Although the sub-indices netted out to no change for Wood Products, we note the decrease in customer inventories as a modestly positive sign. Paper Products contracted as the drop in production and export orders overwhelmed the positive effect of rising new orders. Real Estate and Ag & Forestry both reported contraction in overall activity, while Construction expanded.