Factories contract for 17th month

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By David M. Dickson

Manufacturing activity declined for the 17th consecutive month in June, but the rate of contraction in the factory sector continues to be slower compared with the steep downturns during the fall and winter.

Meanwhile, total construction spending fell again in May, indicating that the eventual recovery will not likely get a boost from the homebuiding sector before the end of the year.

The manufacturing index, compiled by the Institute for Supply Management (ISM) in Tempe, Ariz., increased by 2 points to 44.8 in June. Index levels below 50 reflect a shrinking factory sector; levels above 50 indicate an expanding sector.

At 44.8, the manufacturing index in June was at its highest level since August. That level is "consistent with the end of prior recessions," said John Silvia, chief economist at Wachovia Economics Group. "From here the economic direction is up, but still not roaring."

"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," said Norbert J. Ore, the chairman of ISM. Those expanding industries included petroleum and coal products, printing, wood products, chemical products and primary metals.

Mr. Ore said the 12.1 percentage point jump in the production index during the past two months was "most encouraging." The production index, a subset of the manufacturing index, hit 52.5 in June, the first time it has moved above 50 percent after nine months of contraction.

Employment declined for the 11th consecutive month, and the index for new export orders contracted for the ninth month in a row. Perhaps the biggest disappointment in the report was the new orders index, which fell from 51.1 to 49.2.

Private construction declined at an annual rate of 1 percent in May and was 17.4 percent below May 2008 levels, the Commerce Department reported Wednesday. Residential construction spending dropped at a rate of 3.5 percent in May and was down fully one-third from year-earlier levels.

Eventually, the $787 billion stimulus bill passed in February is expected to kick-start many "shovel ready" construction projects across the country. But May's report confirmed that the full stimulative effect of "shovel ready" projects had not occurred yet, given that public construction spending declined 0.6 percent in May. However, it was 3.4 percent above May 2008 levels, in sharp contrast to private construction.

Foreshadowing the Labor Department's employment report for June, which will be issued Thursday, the ADP Employer Services report showed that companies cut 473,000 jobs last month. In May, the Labor Department reported 345,000 payroll jobs were lost, a total that was roughly half the average number of jobs lost during the previous six months.

Six million payroll jobs have been lost since the recession began in December 2007. Of that total, manufacturing has shed 1.8 million jobs, and the construction industry has lost more than 1.2 million jobs, according to Labor Department data.