Withering shoots

It is incredible that 19 months into such a nasty recession plenty of economic indicators are still getting genuinely worse. Take Wednesday's survey of US manufacturing conditions from the Institute of Supply Management. Most will rejoice that the factory index rose slightly to 45 per cent in June, in spite of such levels remaining consistent with a shrinking economy. But a peek beneath the headlines reveals that manufacturers are far from cosy.

Three numbers stand out. First, inventories fell yet again, this time by 2 percentage points to 31 per cent – a 27-year low. For months optimists have promised a recovery kicked off by a rebuilding of inventories. Clearly, however, a near-term pick-up in customer appetites has yet to be tapped into manufacturers' spreadsheets. Those at the sharp end, in other words, are still cutting back.

Second, if things are supposedly improving, why are orders still falling? This component of the survey also fell last month and, like inventories, remains below the magical 50 per cent level. That leaves the surprise growth of orders in May – which broke a 17 month downtrend – looking more like a blip than a turning point. And a drop in orders will eventually feed through to the production index, which itself has only popped above 50 per cent for the first time in nine months.

Finally, the ISM report breaks down its numbers by industry. These show a particularly telling story this month. Amid a mini-bubble in commodity prices, guess which sectors are feeling particularly buoyant these days? Manufacturers of oil, mineral, wood, paper and plastic products, for example, are mostly reporting growth. Companies that make things consumers want on the other hand, such as furniture, textiles, cars and electronics, are still uniformly gloomy. That is worrying.

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