The Southeast Michigan Purchasing Managers Index dropped in July to 51.7, suggesting the start of an economic slowdown in Southeast Michigan. An index number above 50 indicates growth in the economy, but the growth rate declined each of the past five months.
Wayne State University School of Business Administration faculty members and the local chapter of the Institute for Supply Management administer a monthly survey to purchasing managers to calculate this composite index of local economic activity. The index largely serves as an early indicator of what is coming in the economy. The current level shows an economy just barely holding its own.
“It is possible that this slowdown can be attributed to a temporary summer slowdown in manufacturing,” said Nitin Paranjpe, an economist and global supply chain management faculty member in Wayne State’s business school, who analyzed the survey results. “While it is still too early to say whether this is the start of a slowdown, the signs are not good.”
The employment index dropped severely, from 56.5 in June to 39.5 in July. Production activity slowed and new orders also stopped growing.
Michigan’s unemployment rate climbed from 10.2 percent in April to 10.5 percent in June. The nation’s unemployment rate was unchanged in June at 9.2 percent.
The commodity prices index shot up from 69 in June to 84.3 in July. The three-month average of 78.7 indicates inflation in commercial markets.
July showed price increases for rubber, oil-based products, PVC resins, plastics, tantalum, niobium, copper, steel, aluminum, precious metals, cotton, and construction costs. Natural gas, petroleum and electronics were down in price.
“The dramatic growth in commodity prices points to signs of stagflation in the economy,” said Paranjpe.
Stagflation is what occurs when a rise in inflation combines with an economic slowdown.
The national economy also slowed sharply in the first quarter of the year as high gas prices cut into consumer spending, bad weather delayed construction projects and the federal defense spending was cut by the most in six years.
Concerns and comments from purchasing managers were telling. Only 26.7 percent of purchasing managers surveyed indicated that business conditions are more stable, a decline from last month’s reading of 54 percent.
Purchasing managers’ apprehensions were generally attributed to cuts in government budgets for defense spending, government’s overall spending and the country’s debt situation.
The complete Southeast Michigan Purchasing Managers Index report for July is available online at http://www.ism-sem.org/uploaded_pics/pdf-20110727165741.pdf.