Utah manufacturing showed little sign of improvement in June, while U.S. manufacturing activity shrank for the first time in nearly three years, more signals that economic growth is slowing.
The Goss Institute for Economic Research on Monday said its index of manufacturing activity for Utah advanced to 55.5. That’s up slightly from 55.3 in May, on par with the same time last year but well off the pace set earlier this year when the index averaged close to 62 during the January-through-February period. An index of 50 is considered growth neutral — that the intensity of manufacturing across the state is neither rising nor falling.
“It indicates that Utah’s economy growth is slowing down and slowing down fairly dramatically. We’re incurring an economic headwind right now. There’s no doubt about that,” economist Ernie Goss said.
Nationally, the Institute for Supply Management, a trade group of purchasing managers, said its U.S. index of manufacturing activity fell to 49.7 from 53.5 in May. The June reading is the lowest since July 2009, one month after the recession officially ended. Readings below 50 show that manufacturing is shrinking. The U.S. and Utah indexes are computed using the same methods.
In the three-state region of Utah, Colorado and Wyoming, the Goss index rose to 57.2 in June from 56 in the previous month. Colorado was the strongest of the three states, followed by Wyoming and Utah (58.6, 55.7 and 55.5, respectively).
“Although businesses that we survey continue to benefit from healthy farm and energy income, recent gains in the value of the U.S. dollar and global economic problems are likely to weaken this growth in the months ahead. The stronger dollar tends to make U.S. goods less competitive abroad and push energy and agriculture commodity prices lower,” Goss said.
In Utah, Goss found weakness in new orders and sales, which are measures of future activity. On the other hand, inventories and employment were strong in June.
“Very healthy manufacturing economic activity has been offset by somewhat weaker growth in the state’s energy sector,” Goss said.
Manufacturing, which has helped drive growth since the recession ended, has begun to falter as the U.S. job market has fizzled and global growth has weakened.
“This is not good. Not good at all,” said Dan Greenhaus, chief economic strategist at BTIG, an institutional brokerage. Although the U.S. report ”does not mean recession for the broader economy, it is still a terribly weak number.”
Americans have pulled back on spending, which has lowered demand for factory-made goods. Europe’s economy most likely is in recession, which has hurt U.S. exports. And China’s manufacturing sector grew in June at its slowest pace in seven months.
The sharp drop in U.S. factory activity overshadowed more positive news on the housing market. U.S. construction spending rose for the second straight month, although spending remains well below healthy levels. In Utah, some builders believe housing prices have bottomed out and buyers are coming back into the market.