According to the Federal Reserve, June's 0.4% rate of production decline at factories, mines and utility companies was the lowest in eight months. Though still negative, the figure was considerably improved over the 1.2% decline recorded for May. It was also below the 0.6% economists had forecast. However, factory output alone, which accounts for 80% of industrial production, did fall 0.6%. In addition, the level of industrial capacity in use dropped to a record-low of 67%.

According to Tempe, AZ-based ISM, its monthly factory services index for June rose to a reading of 44.8, from 42.8 in May. The result marked the sixth straight month-to-month increase and the highest reading since August 2008. Though the figure means the manufacturing sector has now contracted 17th months straight, the fact the rate of contraction is slowing indicates the economy is gradually regaining equilibrium. Index readings of more than 50 indicate expansion, while readings below 50 indicate contraction.

Several of the institutes industrial indexes actually went above 50 in June. "Most encouraging," says Norbert Ore, chair of ISM's business survey committee, "is the gain in the production index, which is up 12.1 points in the last two months to a 52.5 reading." The index rose 6.5 points in June. In other readings, the institute's prices index increased 6.5 points to 50, while supplier deliveries rose 0.8 point to 50.6. The employment index also rose 6.4 points but remained at a disappointingly low 40.7 reading.

"Aggressive inventory reduction continues and indications are that the destocking cycle is at or near the end in most industries, as the customers' inventories index remained below 50 for the third consecutive month," says Ore. "The prices index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data."

In addition to the slowing rate of contraction, ISM says seven of the 18 industrial sectors it tracks registered growth in June. Sectors showing growth included petroleum and coal products; printing and related support activities; wood products; nonmetallic mineral products; miscellaneous manufacturing; chemical products; and primary metals. Industries reporting contraction in June were apparel, leather and allied products; furniture and related products; machinery; computer and electronic products; electrical equipment, appliances and components; plastics and rubber products; textile mills; transportation equipment; food, beverage and tobacco products; and fabricated metal products.

Instant Insights /

Industrial Production Contracts But at Slowing Rate

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