U.S. Midwest business up slightly in June

(Adds details, background)CHICAGO, June 30 (Reuters) - Business expanded marginally in the U.S. Midwest in June, figures released on Monday showed, suggesting the manufacturing sector is still struggling to find a firm footing.

The National Association of Purchasing Management-Chicago index edged up to 52.5 in June from 52.2 in May. A reading below 50 indicates a contracting regional manufacturing sector, while a reading above 50 signals expansion.

Economists polled by Reuters had forecast the June index at 53.0, in a range of 50 to 55.

"It's a mildly encouraging release, but it's by no means a sign of imminent recovery for manufacturing," said Vincent Boberski, head of fixed-income research and strategy at RBC Dain Rauscher Inc in Chicago.

The index had slipped below 50 in March, showing contraction for the first time in five months. The pullback sparked concern about the U.S. economic recovery.

Because Chicago is the economic hub of the Midwest, some interpret the NAPM-Chicago report as a barometer of Midwest manufacturing, although both manufacturing and service sector companies are included in the index.

Bill O'Grady, vice president and director of futures research at AG Edwards & Sons in St. Louis, termed the report "a little friendly for debt."

"It's still showing expansion" in line with "slow, steady improvement" in the economy, O'Grady said.

Two components of the index rose sharply in May, and their progress was eagerly anticipated on Monday.

Production fell to 56.5 from 60.5 in May. The new orders component rose to 54.8 from 54.6 in May.

The employment component of the index, consistently soft in recent months, edged up to 43.8 from 43.6 in May.

Treasury prices firmed on the data, while U.S. stocks lost some of their early gains. The Dow Jones industrial average (CBOT:^DJI - News) dropped back toward unchanged for the day. The benchmark 10-year Treasury note (US10YT=RR) reflected a yield of 3.51 percent, down from 3.55 percent ahead of the report.

Prices paid fell to 49.1 from 53.7. Inventories -- which are not used to calculate the index -- rose to 48.8 from 42.3.

Some economists believe the Chicago barometer contains clues to the direction of the national Institute for Supply Management report. Economists polled by Reuters expect the June ISM index to rise to 51.0 from 49.4 in May.

"This does not change our view on the national number which we expect to be 52.5," said Drew Matus, senior economist at Lehman Bros.

"It indicates that the manufacturing sector may be beginning to stabilize but the key data to watch for the economy and for the manufacturing sector is the unemployment report on Thursday," Matus said.

The Chicago PMI is the latest in a series of reports that show the U.S. manufacturing sector improving only in fits and starts and weakening at the time of the U.S.-led war in Iraq.

The Philadelphia Fed and especially the New York Fed "Empire State" manufacturing surveys for June had an upbeat slant.

But durable goods orders for May reported June 25 dropped by 0.3 percent to post a second consecutive monthly decline.

Earlier Monday, the National Association of Purchasing Managers-New York showed that business conditions in New York City deteriorated in June to their worst level in the 10 years of the survey's existence.

The New York survey said several principle industries in the Big Apple were "still sputtering."

The full repott is at Chicago NAPM Business Barometer - June 2003and seems more negative:

Production          "Loses half of last month's gain"
New Orders          "Unchanged"
Order Backlogs      "Continues to shrink"
Inventories         "Biggest jump since March 2002, but still contracting"
Employment          "Flattened"
Supplier Deliveries "Rebounds"
Prices Paid         "Dips into retreat"
Buying Policy       "Retreats to February Level"
MRO Supplies        "Edges Up"
Capital Equipment   "Slips to January lead time"

Yep, the economy sure is a coiled spring waiting, and waiting, and waiting to rebound into a second half recovery.

Richard W.

4 posted on 06/30/2003 2:40:25 PM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)

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