The June Metro Detroit Purchasing Managers Index showed little significant improvement relative to May, increasing only 0.7 points. 

The June Index -- a measure of production, new orders, employment, inventory, vendor deliveries and commodity prices -- was 47.3.  Readings below 50 tend to indicate a contracting manufacturing economy, according to Walsh College economist David Allardice.

Allardice, Walsh College director of doctoral programs, compiles the Index each month from surveys of 800 members of the National Association of Purchasing Managers’ Detroit chapter.

The upcoming Olympics made an impact on the June index, as did poor automotive sector performance, high prices, and the dollar’s low value.

Production, at a level of 43.1, new orders at 50 and employment at 42.9 all pulled the index down in June, Allardice reported.

“Based on reports to the supplier, some Chinese factories are closing to allow for a cleaner environment during the Olympics, which could be a factor in slower shipments," Allardice said. "Another respondent noted that raw materials from China have a much longer lead-time and that the prices are higher.”

Instability at Ford and GM continues to put pressure on Tier 1 and 2 suppliers,  Allardice said.

"As a result, spending is down at many businesses as firms tighten their belts in an effort to weather the downturn," Allardice said. "Suppliers said that major layoffs are now hitting the Tier 1 suppliers due to the automotive slump.”

High prices and the low value of the dollar continue their negative impact upon the local business sector. Steel mills now hold their prices for only 48 hours, making it impossible to determine pricing to their customers, one respondent noted.

The low value of the dollar was cited as a reason for moving production back to the local area.

Oil prices are expected to stabilize in the third quarter, according to another respondent, who said that the economy will adjust as new and more efficient technologies are put in place.

While the third quarter was forecast to be a challenge, respondents expect conditions will begin to improve by the fourth quarter.

Asked about business prospects six months forward, 42 percent of the respondents indicated they expect a less stable environment, up 16 percentage points from May. 

Only 19 percent believe that the business environment will be more stable by the end of fourth quarter. About 39 percent of the respondents are of the opinion that conditions (which are not favorable) will be about the same around year-end.