Ahead of the Bell: Manufacturing index

AP News
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Posted: Jun 01, 2011 7:02 AM
Ahead of the Bell: Manufacturing index

Manufacturing activity likely increased in May for the 22nd straight month, but at a slower pace than in April.

The Institute for Supply Management's index of manufacturing activity, set to be released Wednesday, dropped to 57.8 in May from 60.4 in April, according to economists surveyed by FactSet. That would be the third straight decrease and the sharpest monthly decline since December 2008.

Any reading above 50 signals expansion. The projected outcome for May suggests that manufacturing remains a bright spot in the nation's slow economic recovery.

The factory sector has expanded since the official end of the recession in June 2009. Strong overseas demand boosted exports of computers and machines. U.S. automakers rebounded in the two years since General Motors and Chrysler filed for bankruptcy protection.

However the index has edged back toward 50 this spring as manufacturers faced serious headwinds in the U.S. and abroad. Producers are paying much higher prices for commodities and other inputs. The catastrophes in Japan disrupted supply chains, depriving factories of key materials and parts. And rising fuel prices tempered consumer spending and reduced expectations for overall economic growth.

The Commerce Department said last week that businesses cut back on orders for heavy machinery, computers, autos and airplanes in April. Demand for long-lasting manufactured goods fell by the largest amount in six months. A number that serves as a proxy for business investment also fell sharply.

Demand for autos, auto parts, steel, computers and electronic equipment all fell. Manufacturers had trouble getting critical component parts from Japan, where production was disrupted by the March earthquake, tsunami and nuclear plant disasters.

The ISM's regional indexes have fallen short of analysts' expectations in recent weeks, signaling that Wednesday's national reading might be even lower than the consensus estimate.

The index topped 60 for four straight months starting in January. February's report showed the fastest expansion in nearly seven years. If May's reading falls in the mid-50s, that still will signal healthy growth _ just not at the rapid pace recorded earlier this year.

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.