Traders received another piece of disappointing economic data, suggesting the U.S. economic outlook isn’t as rosy as many economists believe.
On Tuesday, June 30th, the Institute for Supply Management (ISM) reported Midwest manufacturing activity declined last month. In May, the Chicago Purchasing Manager Index (PMI) climbed to 49.4 from 46.2 last month, the fourth straight month that the index has signaled a contraction. (Source: Institute for Supply Management, June 30, 2015.)
The number missed analyst expectations. According to Bloomberg, economists had forecasted the index read at 50 for June, right on the border of expansion and contraction (where above 50 signals expansion and below 50 signals contraction).
The increase in the index was led by expansion in new orders. However, other components show a contraction. Production contracted as well as order backlogs from the previous month.
Manufacturers continue to reduce their inventory levels, which may also be an indication of weaker demand. June’s number marks the third consecutive decline and standing below 50 for the first time in four months.
The numbers published by the ISM were just one of several disappointing economic data points released in recent weeks. Earlier this month, the Federal Reserve reported that industrial production dropped 0.2% month-over-month in May; the second consecutive monthly decline. The number of reports have also shown that American manufacturers are struggling to cope with a strong dollar and spending cuts in the energy sector. (Source: The Federal Reserve, last accessed June 30, 2015.)
Analysts will be watching tomorrow’s ISM Manufacturing PMI report, which will provide an insight into economic activity across the whole country. That will give traders an even better insight into the state of the American manufacturing sector.
If the report is weak as well, economists could be forced to dial back their growth projection for the U.S. economy. While most analysts expect the economic recovery to pick up in the second quarter, today’s numbers suggest growth could be more muted than widely forecasted.