Saturday, July 28, 2012

US manufacturing activity is hampered by declining orders and rising inventories

Markit flash (preliminary survey results) PMI suggests a material slowdown in US manufacturing. The US manufacturing advantages of relatively low labor costs (discussed here) and inexpensive energy have failed to prevent the slowdown.

Source: Markit

It seems that at least some of the decline is due to falling exports, as Europe undergoes a recession and China has slowed.
Chris Williamson (Markit): - “The U.S. manufacturing sector is clearly struggling under the pressure from falling exports, which showed the first back-to-back monthly decline for almost three years in July. Growth of production is slowing closer to stagnation as a result, and rising levels of unsold stock may mean companies seek to scale back production in coming months unless demand picks up again.
This trend of declining orders and rising inventories is now clearly visible in the data. Last year a decline in orders corresponded to a correction in inventories as companies quickly adjusted to lower demand. This time around however inventories have climbed even as orders fell. That's a worrying sign because firms will need to work through the inventories before production picks up again.

Source: Markit/JPMorgan
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