ISM's PMI index up to 50.2% in June

After four months of loss, manufacturing index ticks up slightly

By Maria Varmazis -- Purchasing, 7/1/2008 5:00:00 AM

The Institute for Supply Management’s monthly manufacturing index showed a value of 50.2 in June, a slight increase from 49.6 in May. Any value above the 50 point level shows growth, but the increase is so slight that buyers and manufacturers are not celebrating this news.

"While the PMI indicates minimal change is taking place month over month, that is hardly the situation," says Norbert Ore, ISM's chair of the Manufacturing Business Survey Committee. "Viewed from the manufacturer's perspective, they are experiencing higher prices for their inputs while demands for their products is slowing."

The only commodity reported to have slid in price in June was copper, while all other commodities tracked increased in price. ISM's manufacturing index also reports that caustic soda and steel were in short supply.

Sustained demand for exports kept the manufacturing index above 50 in June, while imports continue to plummet. "The June ISM index shows manufacturing holding steady but facing severe price pressures," says Ryan Sweet, economist at Moody's. "Although the ISM index beat expectations, the near-term outlook for the economy is turning more negative."

The big reason for that pessimism is, as always, the cost of fuel. Any gains manufacturers are seeing from bolstered export demands are being eaten away by skyrocketing oil costs, which have shown an increase of 38% just in the second quarter. Also contributing to pessimism are higher-than-normal inventory levels. ISM's inventory index registered at 51.2 for June, its highest level seen since 2005 due largely to weak domestic demand.