Manufacturing has taken the summer off, according to economists and buyers polled by PURCHASING magazine. Activity has slowed or leveled off, and even normally bullish government economists are downgrading their projected growth rates for the second half. "The business climate is fair, but there are indications that incoming orders are slowing over the long run," says the buyer at a metal parts company in Pennsylvania.

Less than half of the buyers (43%) reported any recent business growth. And only half expect to show active purchasing through the third quarter. That fits with the comment of the raw materials purchasing manager at a South Carolina-based packaging firm, who says: "We expect our business to be just stable for June, July and August." The senior vice president of another packaging firm, this one in Pennsylvania, says: "The industry is down as a whole, and overseas competition is getting harder to compete with."

Business since May has stayed flat with little or no upward mobility. Even officials at the White House Council of Economic Advisers back up respondents to the magazine's monthly business survey, trimming the government's forecast for 2005 economic growth and ramping up inflation expectations. "While business is still strong, we are seeing a slowdown in incoming orders," says the purchasing agent for a processed materials firm in Illinois. "That's probably due to customers having built up a cushion (of inventory) over the previous several months due to tight supply at the time that has since dissipated." Little wonder the purchasing community reports slowing demand for materials from their production departments and 88% are planning to leave inventories alone, or to cut them.

Respondents to the survey indicate that general price conditions remain stable in June, but raw-material prices took a hit. In fact, the June survey found solid indications of suppliers reducing sales prices of such key commodities as steel and chemicals. "Metal prices have come down," says the purchasing manager for a California heating, ventilating and air conditioning manufacturer," and I see a trend of reduced prices for the next couple of months."

Large inventories at the distribution and mill links of the supply chain, and lower-than-expected demand definitely are weakening steel prices. That's why the purchasing manager of a Missouri-based steel service center says: "The normal grades of steel are coming down in price in such a nature that we are holding off buying to see where this pricing trend leads." This may prove challenging since the mills are still holding significant inventories that have yet to make it into the already-glutted distribution channel.

Despite minor declines in U.S. weekly crude-steel production, the bellwether hot-rolled steel sheet in coil market has continued to see future-delivery price declines this summer. One brokerage says buyers have indicated that hot-rolled coil prices have fallen to the $430/ton level at the time OEM buyers were paying $480—with expectations that service center buying prices are could fall below $400/ton by July-as compared with $646 in January.

"Steel pricing is continuing to drop due to soft automotive markets," says a materials manager for an Indiana consumer products firm, who says he has benefited from a regional price decline and supply expansion. Analysts blame high gasoline prices and shifting consumer car and light truck tastes for the spate of weak demand, which has caused the Big Three to slow output at plants this year to reduce inventory at dealerships.

The Bush administration projects a 2.9% rise in the consumer price index this year and blames that on volatile energy prices. Harvey Rosen, chairman of the White House Council of Economic Advisers, says it's hard to predict whether oil prices have peaked, but acknowledges high energy costs are hindering the economy. "Certainly increasing oil prices can create headwinds for the economy," he tells reporters, "they create some distress for households and for businesses."

Rising energy costs have pushed consumer prices upward, and have impacted manufacturing costs and such raw materials as plastics. "Business is up and down, and we cannot keep orders moving," says the president of a blow-molded plastic products company in Michigan. "Material cost increases are slowing business and hurting profits. Some jobs will be dropped if resin cost increases are not accepted by our customers. It is time to fire the customer."