According to the Institute for Supply Management, manufacturing activity in July barely inched up from an index number of 49.8 from June’s reading of 49.7, and represents the first “real” contraction in the factory sector since July 2009 which supposedly signaled the beginning of the economic recovery. Index readings under 50 indicate activity is shrinking instead of growing, and July marks the second month in a row where the index stayed below 50.    

According to industry observers, the details of the ISM report suggest even more sluggishness ahead. While order backlogs fell, inventories surged.  New orders—always an indicator of what lies ahead—rose at very minimal levels, suggesting firms are dispatching old orders but not getting many new ones.  Exports dropped in July for the second consecutive month.

Manufacturing employment, which up until now has been one of the few bright spots in  overall job growth, fell sharply.  While companies, our clients included, are still hiring, they aren’t doing so with a whole lot of confidence that current manufacturing levels can be sustained.