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U.S. manufacturing falls for first time in nearly three years

July 03, 2012|By Tiffany Hsu, Los Angeles Times

After being touted months ago as a main driver of the recovery, the U.S. manufacturing sector shrank for the first time in nearly three years last month amid tepid demand and an unpredictable economy.

A factory index calculated by the Institute for Supply Management slid to 49.7 in June from 53.5 in May to the lowest reading since July 2009. Any level below 50 denotes tightening in the sector; anything above signifies growth.

The Dow Jones industrial average promptly took a nose dive after the report was released at 10 a.m. Eastern time. It staged a comeback but never got back into positive territory, closing down 8.7 points to 12,871.39.

The factory index is made up of several factors, each with its own measurement. New orders tumbled below the 50 mark for the first time since April 2009, reaching 47.8 in the seventh-largest monthly plunge ever. Production levels continued to grow, although the rate of expansion plummeted to a three-year low of 51. Costs for raw materials continue to fall.

The sector's downturn was blamed by analysts on the financial crisis and vague policies in Europe, as well as slowing growth in China that tamped down demand for American-made goods. Exports, at 47.5, were also at three-year lows.

Also Monday, research group Markit found that U.S. manufacturing grew at its weakest pace in 18 months.

tiffany.hsu@latimes.com

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