Our manufacturing sector takes a hit

Data released by the Institute for Supply Management shows that the U.S. manufacturing sector contracted in June. This is the first such contraction in more than three years. According to the report accompanying the data, businesses had solid sales in June, but believe future demand will decline and thus have cut back on new orders. The belief that demand will decline is based mainly on expectations regarding Europe and China.

As a result, manufacturing activity, as measured by the Institute’s index, fell by 3.8 points to 49.7 percent. Any number below 50 percent is a contraction under this index. The last contraction occurred in July 2009.

The Institute’s index is considered a reliable leading indicator of gross domestic product. Thus, some economists now believe that projections that GDP will grow by 2.0 percent this year, modest though they be, are too optimistic.

It may well be, therefore, that voters will decide whether to reelect President Obama in the context of even worse economic circumstances than most analysts expected. If so, it’s easy to imagine undecided voters and battleground states breaking for Romney.

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