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Global woes pull down US factory activity for third month in a row
Source: Agencies |
September 5, 2012, Wednesday
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UNITED States factory activity shrank for the third straight month in August as new orders, production and employment all fell. The report adds to other signs that manufacturing is struggling around the globe.
The Institute for Supply Management, a trade group of purchasing managers, yesterday said its index of manufacturing activity ticked down to 49.6. That's down from 49.8 in July and the lowest in three years. A reading below 50 means contraction. Weak consumer spending and steady declines in business orders for large machinery and other capital goods are slowing factory output.
The report followed other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month. And manufacturing in Europe has also stagnated in the face of the region's financial crisis.
Paul Dales, senior economist at Capital Economics, said continued uncertainty due to the recession in Europe, the slowdown in Asia and impending US tax hikes and spending cuts "is taking its toll on activity."
"At this level, the index remains consistent with ... growth in the third quarter of between 1.5 percent and 2 percent," Dales said in an e-mail.
The manufacturing index typically needs to fall to about 43 to suggest the broader economy is shrinking, according to the ISM. Still, growth at or below 2 percent is not enough to significantly lower the unemployment rate, which was 8.3 percent in July. And the slight decline in manufacturing activity also makes it more likely the Federal Reserve will take steps at its meeting next week to boost economic growth, Dales said.
The US Commerce Department said in a separate report that overall construction spending declined 0.9 percent in July from June, the largest amount in a year.
US factories have been a key source of jobs and growth since the recession ended in June 2009. But the sector has shown recent signs of weakness. The ISM survey showed factories kept hiring but at a slower pace. And production dropped sharply to 47.2, the first time it has fallen below 50 since May 2009, when the economy was in recession.
New orders, a sign of future production, also dropped. New export orders increased but remained below 50, contracting for the third straight month.
The Institute for Supply Management, a trade group of purchasing managers, yesterday said its index of manufacturing activity ticked down to 49.6. That's down from 49.8 in July and the lowest in three years. A reading below 50 means contraction. Weak consumer spending and steady declines in business orders for large machinery and other capital goods are slowing factory output.
The report followed other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month. And manufacturing in Europe has also stagnated in the face of the region's financial crisis.
Paul Dales, senior economist at Capital Economics, said continued uncertainty due to the recession in Europe, the slowdown in Asia and impending US tax hikes and spending cuts "is taking its toll on activity."
"At this level, the index remains consistent with ... growth in the third quarter of between 1.5 percent and 2 percent," Dales said in an e-mail.
The manufacturing index typically needs to fall to about 43 to suggest the broader economy is shrinking, according to the ISM. Still, growth at or below 2 percent is not enough to significantly lower the unemployment rate, which was 8.3 percent in July. And the slight decline in manufacturing activity also makes it more likely the Federal Reserve will take steps at its meeting next week to boost economic growth, Dales said.
The US Commerce Department said in a separate report that overall construction spending declined 0.9 percent in July from June, the largest amount in a year.
US factories have been a key source of jobs and growth since the recession ended in June 2009. But the sector has shown recent signs of weakness. The ISM survey showed factories kept hiring but at a slower pace. And production dropped sharply to 47.2, the first time it has fallen below 50 since May 2009, when the economy was in recession.
New orders, a sign of future production, also dropped. New export orders increased but remained below 50, contracting for the third straight month.
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