"Unfortunately, manufacturing continues to underperform the general economy," says the organization's chief economist, Daniel J. Meckstroth, who contrasts the 3.7% manufacturing decline with anticipated GDP growth for the quarter of 2% on an annualized basis. "The federal tax rebate checks may help people afford everyday items, but it is not having much impact on housing, motor vehicles, industrial machinery and other big ticket industries," he continues. "It is the weak dollar that is keeping the floor under manufacturing plants in the United States."

The organization compiles 12 individual indexes for the manufacturing sector based on a survey of 67 senior financial executives representing a broad range of industries. The business outlook index gives a weighted sum of four of the 12 indexes, including shipments, backlogs, inventories and profit margins. Higher scores shower greater confidence on the part of respondents. The current reading means manufacturing activity is expected to remain flat the next three to six months.

Changes in some of the 12 individual indexes reveal deeper problems in some manufacturing-related areas, with four scores showing troubling double-digit shifts. The annual orders index, based on a comparison of expected orders for all of 2008 with actual orders in 2007, slipped to 50% from 68% in March, while the quarterly orders index, comparing actual levels this year to last, fell to 46% from 58%. The inventory index rose to 69% from 54%, signaling a sharp buildup in inventories, and the prospective US shipments index, based on anticipated shipments for Q3 compared with the same quarter last year, declined to 52% from 62%. The profit margin index showed a more moderate negative change, falling five points to 55%.