Manufacturing index up for 6th straight month

Survey of purchasing managers climbs more than expected, but continues at contraction levels.

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By Julianne Pepitone, CNNMoney.com contributing writer

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NEW YORK (CNNMoney.com) -- Manufacturing sector activity rose in June for the sixth straight month, but the index reading still indicates a contraction, a purchasing managers' group said Wednesday.

The Tempe, Ariz.-based Institute for Supply Management's (ISM) manufacturing index rose to 44.8 in June, up from 42.8 the previous month.

The reading narrowly beat estimates from economists, who expected a jump to 44.6, according to a Briefing.com consensus survey.

The slight month-to-month improvement indicates that the rate of contraction has slowed, but not reversed itself. Manufacturing is a key indicator in gauging the strength of the overall economy.

The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing sector. Index readings above 50 indicate growth, while levels below 50 signal contraction. Readings below 41 are associated with a recession in the broader economy.

ISM's June report marks the 17th straight month of contraction. The index hit a 28-year low of 32.9 in December, capping 11 consecutive months of decline.

The data track new orders, production, employment, supplier deliveries, inventories, customers' inventories, backlog of orders, prices, new export orders, imports and buying policy.

New orders down: Of the 18 manufacturing sectors, seven reported growth -- including categories such as petroleum, chemical products and metals. The 11 that reported contraction included apparel, furniture, food and machinery.

The key new orders index fell to 49.2 in June, from 51.1. New orders are considered an indicator of manufacturing activity in the near future.

"It's bad news that new orders fell from that important 50 mark," said John Canally, Economist for LPL Financial. "It seems to be a one step forward, one step back type of recovery."

But three indexes posted significant gains. The production index jumped 6.5 points to 52.5, crossing over the 50 mark threshold into growth. The prices index rose 6.5 points to 50.

Employment: The employment index also ticked up -- by 6.4 points, to 40.7.

"It's a big improvement, but it's still not saying we're adding jobs," Canally noted.

In separate reports Wednesday, outplacement firm Challenger, Gray & Christmas Inc. said the number of job cuts announced in June fell for the fifth straight month, for a 33% decline over the month and a 9% dip over the year. But a report from payroll firm ADP said private-sector jobs decreased by 473,000 in June.

"The 'green shoots' story is getting old," Canally said. "At this point we're asking: Are the shoots growing?"

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