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Purchasing index takes worrisome drop in June Construction makes only weak advance


WASHINGTON -- The spate of weak economic numbers continued yesterday as the nation's purchasing managers reported that their industrial index skidded in June to less than 50 percent, the dividing line between expansion and contraction. It was the lowest reading in 18 months.

Meanwhile, outlays for construction were reported to have edged up a scant one-tenth of 1 percent in May, which analysts considered disappointing, and confidence among top business executives ebbed.

The only bit of upbeat news was that 11,000 fewer people made first-time claims for unemployment benefits last week, a development that fanned some hopes that the June unemployment data to be published today would be encouraging. Expectations were that payrolls expanded by perhaps 150,000 while the unemployment rate remained close to May's 6.9 percent.

But the sharp decline in the purchasing managers' index, to 48.3 percent from 51.1 percent, attracted the bulk of yesterday's attention. This prompted fresh expressions of concern about the durability of the business expansion, which has been officially under way for more than two years but has been below normal and, in some sectors, hard to even detect.

"The desired improvement in new orders failed to materialize in June, resulting in a decline in the manufacturing sector and a dismal conclusion to the second quarter," said Robert J. Bretz, director of corporate purchasing at Pitney Bowes Inc. and chairman of the National Association of Purchasing Management's business survey committee.

Only eight of 20 industries reported June growth greater than May's, and the weakness was reflected in lower employment and production, as well as the slump in orders.

The decline in the purchasing managers' index, to the lowest point since December 1991, was the fourth in the past five months after the index rose without interruption from October through January, the association's report showed. The new-orders component, accounting for 30 percent of the index, fell even more steeply, to 49 percent in June, from 53.5 percent in May, and was the lowest reading since September 1992.

Employment in factories fell once again -- and at the most rapid clip since early last year -- and even the pharmaceutical industry, which kept adding jobs through the latest recession, has now begun "downsizing," the group found.

"It's pretty compelling evidence that there's not much sign of life in the manufacturing sector," commented Richard B. Berner, chief economist for the Mellon Bank in Pittsburgh.

He called the situation disappointing in light of interest rates that have tumbled.

One common explanation, of course, is that the Clinton administration's budget legislation and still-developing health-care program was prompting employers to avoid making new investment or hiring commitments.

Mr. Bretz guessed that while many corporate decision-makers "don't like" the Clinton budget, which is heavy on tax increases and might be unrealistic about spending cuts, companies could be cutting back more than would prove necessary.

The Commerce Department's construction report for May showed a one-tenth of 1 percent advance, but the pickup was entirely in the nonresidential sector, which had plunged nearly twice that much in April. Spending on new homes fell four-tenths of 1 percent, consistent with recent reports of poor starts and sales.

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