Activity in the U.S. manufacturing sector unexpectedly contracted in the month of June, according to a report released by the Institute for Supply Management on Monday.
The ISM said its purchasing managers index dropped to 49.7 in June from 53.5 in May, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to show a much more modest decrease to a reading of 52.0.
With the bigger than expected decrease, the index pointed to a contraction for the first time since July of 2009, when it showed a reading of 49.2.
Rob Carnell, chief international economist at ING, said, "June's U.S. manufacturing ISM is substantially weaker than forecast, which will raise expectations for some further stimulus from the Fed, even though they have just extended and amended their twist policy by a further $267 billion of maturity extension."
A substantial turnaround by new orders contributed to the weakness in the sector, as the new orders index tumbled to 47.8 in June from 60.1 in May. The reading below 50 pointed to the first contraction in new orders since April of 2009.
The production index also fell to 51.0 in June from 55.6 in May, although the reading above 50 points to continued production growth.
The inventories index slipped to 44.0 in June from 46.0 in May, while the backlog of orders index dipped to 44.5 from 47.0.
While the employment index also edged down to 56.6 in June from 56.9 in May, the index pointed to continued job growth in the manufacturing sector.
The report also showed that the prices index plummeted to 37.0 in June from 47.5 in May, falling to its lowest level since April of 2009. The reading below 50 indicates the second consecutive month of falling prices for raw materials.
Thursday morning, the ISM is scheduled to release a separate report on activity in the service sector in the month of June.
Economists expect the ISM's index of activity in the service sector to edge down to 53.0 in June from 53.7 in the previous month.
by RTT Staff Writer
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