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August 7, 2001

Manufacturing Still Weak

Even though this quarter's productivity data showed a rebound from the previous quarter, there are still signs of weakness and few indications that this growth will continue.

The manufacturing sector, especially, shows no signs of recovery. The sector is in its worst slump since the 1990-1991 recession. Productivity growth in manufacturing continued to decline in the second quarter. And last week the National Association of Purchasing Management (NAPM) reported that its monthly manufacturing index fell to 43.6 in July from 44.7 in June. That's the 12th straight month in which order and production volume has fallen.

Business spending on equipment and software plunged at a 14.5% annual rate in the second quarter, the worst contraction since 1982, according to the Commerce Department. And when businesses stop spending to upgrade equipment, it will have a direct impact on productivity. More importantly, because changes in productivity growth are closely tied to overall economic growth, we fully expect productivity to taper off as the economic slowdown continues.


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