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Manufacturing Grows At Slowest Pace In Two Years

Fri, 07/01/2011 - 4:39am

WASHINGTON (AP) — The U.S. manufacturing sector likely expanded last month at the slowest pace in nearly two years and just after the recession ended.

Economists expect the Institute for Supply Management's index of manufacturing activity fell to 52 in June, according to a survey by FactSet. Any reading above 50 signals growth.

Manufacturing activity slowed sharply in May. High gas prices cut into consumer spending and a parts shortage stemming from Japan's March 11 earthquake disrupted automakers' supply chains.

The ISM manufacturing index plummeted in May to 53.5 from April's reading of 60.4. That was the sharpest one-month drop since 1984.

The factory sector has been a driving force behind the economic recovery and has expanded in every month but one since the recession ended in June 2009. Large manufacturers of industrial equipment and machinery, such as Caterpillar Inc., have benefited from strong growth overseas and a weaker dollar.

That helped the ISM's manufacturing index top 60 for four straight months earlier this year.

Some economists raised their expectations for the ISM's index after several regional manufacturing surveys in recent days were higher than expected.

On Thursday, a survey of manufacturers in the Chicago region jumped to 61.1 in June from 56.6. That likely reflects a rebound in auto output, as Japan recovers and resumes exports of key parts, economists said.

Another positive sign came earlier this week, when Japan reported that its industrial production jumped 5.7 percent in May, the biggest jump in nearly six decades. That should ease disruptions in auto and electronic equipment supply chains.

Economists are counting on a recovery in auto production to boost second half growth. Deutsche Bank economists estimate that improved auto manufacturing could add as much as a full percentage point to third and fourth quarter growth.

Still, manufacturing represents only about 11 percent of U.S. economic activity and can contribute only so much to the broader economic recovery.

The economy grew only 1.9 percent in the January-March period, the government said last week. Most economists expect growth to be similarly weak in the current April-June period.

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.

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