Manufacturing slows, but economy remains robust

In addition to the numbers on productivity released Thursday, we got the latest read on the state of American manufacturing. And you can pick your term for it: contracting, softening, weakening.

The Institute for Supply Management, which surveys manufacturers for its purchasing managers’ index, or PMI, said we are in the ninth straight month of contraction. Here’s what that means for the rest of the economy.

Of the 18 manufacturing sectors highlighted in July’s PMI report, all but two were slowing down.

“The sectors that actually are growing were petroleum as well as furniture. There remains a very robust demand there,” said Darrell West, a senior fellow at the Brookings Institution.

People are still glamming up their homes, and the hot weather, which increased electricity demand — plus summer travel — helped the oil industry.

“But in virtually every other area — apparel, plastics, electronics, food and transportation — the manufacturing activity actually was down,” West said.

Some of that has to do with manufacturers’ ongoing struggle to predict demand. Consumers are still spending, but who knows for how long?

All the caution in manufacturing doesn’t necessarily signal a broader economic downturn, according to Tom Derry, CEO of the Institute for Supply Management.

He said that’s because manufacturing makes up only about 11% to 12% of U.S. gross domestic product. Most of the country’s economic output is in the services sector.

“And its relatively strong performance appears to have held us up out of the recessionary period that otherwise we might have expected just on the manufacturing numbers alone,” Derry said.

Despite all the softness, slowing, contraction, etc., manufacturers are ready to ramp things up if they start to see demand, he said.