U.S. Economy Grows for Second Consecutive Month in June

Wednesday the Institute for Supply Managment published its manufacturing report for June 2009. It's overall index (PMI) bumped up for the sixth straight month and stood at 44.8%. The reading suggests, "the overall economy grew for the second consecutive month" in June.

The reading also shows the overall manufacturing sector still on track for a return to growth in the fourth quarter of this year.

Norbert J. Ore, chair of ISM's Survey Committee was quoted as saying:

"Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries."

The overall manufacturing trend continues to collorate well with the several manufacturing graphs we've published and tracked earlier in the year.

With the June ISM index we have yet another concrete indictor that recovery has begun for this cycle.

Comments

[Peter Iwano...:]

Looking at how Industrial production pretty much fell off of a cliff at the beginning of this year was quite worrisome for the rest of the economy. Good thing to see it has started to look more positive.

Jul 02 08:42 AM

[ciel:]

Manufacturing is a far smaller share of the US economy than when the ISM Mfg index was created.

These days, the Services ISM is the index to watch; and, as 70% of the US economy (services), any reading under 50 on that index imlies negative GDP, with almost complete disregard for what the ISM Mfg is doing (no surprise, really, as manufacturing represents less than a fifth of the economy).

Jul 02 09:58 AM

[The Good Ne...:]

@ciel,

I agree with your assessment that 70% of the US economy is in services, but your logic concerning GDP is not consistent with the ISM models.

Historically the ISM only has done correlation to the total GDP with the manufacturing index. "A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy"

There is not a correlation model for the non-manufacturing index.
"An index reading above 50 percent indicates that the non-manufacturing economy in that index is generally expanding; below 50 percent indicates that it is generally declining." The ISM non-manufacturing index makes no claims about how that index relates to overall GDP growth.

GNE
goodnewseconomist.com

Jul 02 07:40 PM

[Old Trader:]

It appears that for yesterday, at least, Mr. Market didn't share your optimism.

Jul 03 01:54 PM

[Henry Buttal:]

GNE,
Nice article, well done and commented....but....while this is positive news, I tend to think this indicates depletion of inventories is now at replacement levels.

This is not the same thing as "U.S. Enconomy grows..."

If ISM improves again, then I will start to believe.

Jul 03 02:07 PM

[ciel:]

GNE,

If the service sector represents roughly 70% of the US economy, and the ISM suggests it is contracting, just because the ISM Non-mfg has not tracked long enough for them to make a statement about its correlation with actual GDP does not in any way negate its potential usefulness as a tool to extrapolate such information.

Put most simply, if services are indeed roughly 7/10 of the US economy, which they are, and they are contracting, which they are, then the rest of the economy had better be running on all cylinders, and possibly then some, in order to print positive GDP numbers.

Jul 03 03:08 PM