Manufacturing Numbers Keep on Softening - TheStreet

Manufacturing Numbers Keep on Softening

Tech manufacturing numbers look even worse than the overall figures.
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The latest numbers on production and capacity should put on notice anyone who believes the worst has passed for technology companies.

Overall, the data were horrendous. Industrial production fell by 0.8% in May, falling to its lowest level since December 1999. Capacity utilization -- the amount of production capacity companies are using -- fell to 77.4%, the lowest rate since August 1983. No doubt about it, the U.S. manufacturing economy is very soft.

"Businesses are aggressively cutting production to match slower demand and keep inventories from rising," says

Banc of America Securities

chief economist Mickey Levy. "Things are very tough out there."

Yet if they're tough for companies in general, for tech companies they're tougher still. The makers of computers, communications equipment and semiconductors saw capacity utilization fall to 70.3%, the lowest level since August 1976 (a comparison that probably isn't even worthwhile because the industry then was only a distant ancestor of what it has become). Production slipped by 1.2% for tech companies, against a decline of just 0.7% for nontech companies.

Doing the Lemming
Capacity utilization for tech

Source: Federal Reserve

Nor, says

Salomon Smith Barney

senior economist Christopher Wiegand, should investors expect the tech environment to improve in short order. Solly's economists have developed a model that uses order information to predict future production. It shows outright contraction in technology production through August, with September essentially unchanged. Capacity utilization rates for tech should continue to decline at around the current pace, according to Wiegand.

"You have a massive inventory overhang that really got worse in April when demand stalled out for tech in particular," he notes. New orders for computers fell by a whopping 10.3% in April, according to the

Commerce Department

. Until demand picks up again, the picture just doesn't get any brighter -- and even then, inventory problems may delay a profits recovery for tech firms. The unwelcome news for investors, many of whom are just finding out that second-quarter results will be even worse than they thought, is that the third quarter looks like it will be grim as well.