Manufacturing Sector Slips Again

The Purchasing Managers' Index fell more than expected in May and continues to show contraction in manufacturing.
By TSC Staff ,

The manufacturing sector continues along its weak path.

The

Purchasing Managers' Index for May, released this morning by the

National Association of Purchasing Management

, showed another slip. The PMI, as the report is known, fell to 42.1 in May.

The survey of approximately 300 purchasing executives nationwide measures the conditions of the factory sector. A reading of 50 or above signals expansion, while below 50 signals a contraction. The index has not been above 50 since July 2000. The latest reading is lower than the 43.5 that was expected and last month's 43.2.

This morning's

employment report

, released before the opening bell by the

Labor Department

, showed that job losses in May were concentrated in the manufacturing sector. Manufacturing shed 124,000 jobs last month, following a loss of 113,000 in April. Since last July, manufacturing has lost 675,000 jobs, with more than two-thirds of the decline occurring since December. Jobs in the service sector, by contrast, rose by 70,000 in May and the construction sector gained 31,000 positions.

In all, 19,000 nonfarm payroll jobs were lost in May, more than the 17,000 decline that was expected. The unemployment rate, however, fell to 4.4% from the 4.5% in April.

The two-year Treasury, which reacts most dramatically to expected changes in

Federal Reserve policy, was slipping this morning. The bond market rallied yesterday in anticipation today's data would be weak and encourage the Fed to again cut interest rates. The Fed has expressed concern about the weakness of manufacturing, and the report could help guide its decisions about further easing of interest rates. It next meets on June 26 and 27 and has already cut interest rates five times since the start of the year to put life backing into a limping economy.

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