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Manufacturing numbers in Pennsylvania, New Jersey and Deleware took a hit this moth, as the economy contracted and missed even the most dire Street estimates. (CARLOS OSORIO/CARLOS OSORIO/ASSOCIATED PRESS)
Manufacturing numbers in Pennsylvania, New Jersey and Deleware took a hit this moth, as the economy contracted and missed even the most dire Street estimates. (CARLOS OSORIO/CARLOS OSORIO/ASSOCIATED PRESS)

Economy Lab

U.S. manufacturing hit the wall in May Add to ...

The U.S. economy's motor is sputtering.







A month ago, the business pages were full of stories about a renaissance in American manufacturing. But as those stories were being written, the industry was hitting a wall.







The Federal Reserve Bank of Philadelphia's index of factory activity in eastern Pennsylvania, southern New Jersey and Delaware plunged to a negative 7.7 in June from 3.9 the previous month, as new orders collapsed. The reading turned negative for the first time since last September.







Philadelphia isn't reflective of the entire United States. But the Philly Fed report follows a similar reading from the New York region on Wednesday. The Empire State manufacturing survey dropped below zero for the first time since November, 2010.







"The overall weakness of this report corroborates the Empire State manufacturing survey's discouraging tone, signaling that the manufacturing slowdown worsened in June," Nicholas Tenev, an economist at Barclays Capital in New York, said in an analysis of the Philadelphia numbers.







Supply chain disruptions caused by the natural disasters in Japan explain some of the weakness, but probably not all of it. Something spooked factory owners toward the end of May, causing them to retreat to the sidelines.







This is disappointing because things appeared to be ok this spring. The Federal Reserve Board's latest industrial production report on Wednesday showed that manufacturing in May was 3.7 per cent above its year-earlier level, and 0.4 per cent higher than April, mostly reversing the 0.5 per cent decline that month.







Capacity use in manufacturing was at 74.5 per cent, a 0.3 percentage point increase from the previous month. That's more than 10 percentage points above the trough in June, 2009, but 4.5 points below the average from 1972 to 2010.







"We hope that over the next couple of months, however, the resilience of consumers persuades businesses that things are not as bad as they feared," said Ian Sheperdson, chief U.S. economist at High Frequency Economics.



Follow on Twitter: @CarmichaelKevin

 

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