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article imageU.S. manufacturing contracts first time in years

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By Larry Clifton     Jul 3, 2012 in Politics
Washington - As U.S. President Barack Obama continues to tout an economic recovery, reports showing economic decline mount, including the first contraction in U.S. manufacturing in years.
U.S. manufacturing slowed sharply in June, revealing a contraction in the economy; the report marks the end of almost three years of growth in domestic manufacturing, according to an ABC report.
Monday, the Institute for Supply Management reported a drop to 49.7 in June from a 53.5 reading in May. A reading below 50 indicates economic contraction. The drop in manufacturing comes on the heels of a flurry of bad jobs reports and an uptick in unemployment.
Even though the report is a worrying sign for the economy, it is election season and the President continues to paint a relatively rosy picture of an economic recovery – a recovery that many Americans are not feeling or seeing in their communities.
Manufacturing had been an oasis during a slow so-called economic rebound as the sector expanded modestly for 34 months in a row before June.
However, the June index came in below the expectations of economists surveyed by Briefing.com. That organization forecast the index to remain somewhat positive at 52.2.
The index's new orders component, a forward-looking indicator, was most troubling, falling 12.3 percentage points in June to 47.8. The contraction in new orders since April 2009 is a harbinger for more slow jobs growth and higher unemployment.
Sam Bullard, a senior economist at Wells Fargo, said that manufacturers are facing global economic head winds.
"The deepening of the eurozone recession and the slowing of China's economy is really having an impact on manufacturers," Bullard said.
Investments in all three major Wall Street indexes dropped significantly lower within minutes of the report's release.
The report suggests slower growth in the second half of the year when taken with weak economic growth and the labor market reports in recent months.
According to Paul Dales, senior U.S. economist at Capital Economics, the country will be in another recession if the index falls to 47.0.
"A reading of below 47.0 is required to be consistent with another recession," Dales said. "This means the index is still consistent with a growing economy, albeit at an annualized rate of a little below 1%."
While Dales claims the U.S. economy has not entered a double-dip recession as yet, economic reports show the country is not adding enough jobs to replace those lost.
Friday, the government is due to release its latest jobs report. Economists predict a gain of about 100,000 jobs, however anything below that number will further rattle investors. The notion that economists predict a bare minimum of 100,000 jobs were created is not good news, since the predicted number is considered already anemic.
The equivalent Manufacturing Purchasing Managers Index in China, who uses the U.S. as a major retail outlet for its manufacturing base, fell to 50.2 from 50.4 in May. As in the U.S., any reading below 50 signals contraction in the manufacturing sector.
Eurozone manufacturing activity has reportedly contracted for 11 straight months, according to Markit's Purchasing Managers' Index, falling to 45.4 in the second quarter, the lowest reading since 2009.
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