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We Tried Our Plan, & it Worked': U.S. Manufacturing Shrank Again in July

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Anything below 50 on the ISM index is considered a contraction.

AP Photo

U.S. manufacturing shrank for the second straight month in July, further evidence that that so-called “recovery” we keep hearing so much about isn’t that much of a recovery.

The Institute for Supply Management (ISM), a trade group of purchasing managers, said Wednesday that its index of manufacturing activity ticked up to 49.8, from 49.7 in June, below its hoped for expansionary print of 50.2 (anything below 50 is considered a contraction).

“Where did offsetting growth come from? The most hollow of indicators -- Inventory -- which keeps on being built up in expectation of a demand spike that never comes,” Zero Hedge notes.

Photo courtesy Zero Hedge

This isn’t the first time the ISM has whiffed on one of its reports.

“This is also the third miss in a row for the ISM, whose most watched component, the Employment index, slid from 56.6 to 52.0 confirming that the earlier ADP [Automatic Data Processing Inc.] number was a total noisy fluke as usual,” the Hedge notes.

If it’s any consolation, the index number needs to fall below 43 to signal that a full-blown recession is on its way (well, according ISM anyways).

So at least we got that going for us, right?

The July report also showed factories hired in at a slower pace than June, while new orders declined more slowly. And export orders fell to the lowest level since April 2009.

Manufacturing has been a key source of growth in the U.S. since the “recession ended in June 2009,” the AP reports. But in recent months, factory activity has weakened along with the broader economy.

But keep in mind, as we’ve noted before on TheBlaze, the housing market has seen an uptick in sales. This means that, along with a contracting manufacturing sector, we’re could be in for a prolonged stagnating economy.

Well, so much for that consolation bit.

Job growth has slumped and U.S. consumers and businesses have cut back on spending, lowering demand for factory goods. Europe's economic woes and slower growth in China, India and Brazil have reduced demand for American exports.

Photo courtesy Zero Hedge

The Federal Reserve said earlier this month that factory output rose in June as the production of cars, machines, and business equipment rose. That followed a drop in May.

Overall, manufacturing output rose at only a 1.4 percent annual rate in the second quarter, after a jump of 9.8 percent in the first three months of the year.

Final thought: Remember when President Obama said "We tried our plan, and it worked?" Which part of "our plan" was he talking about?

Follow Becket Adams (@BecketAdams) on Twitter

The Associated Press contributed to this report.

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