AP News

Ahead of the Bell: US economy-manufacturing

WASHINGTON (AP) — U.S. manufacturing activity likely stayed weak in August, adding to worries that slow growth is weighing on American factories.

Economists surveyed by FactSet expected that the Institute for Supply Management's manufacturing index probably edged up slightly to a reading of 50 in August. The report will be released at 10 a.m. EDT on Tuesday.

Readings above 50 indicate expansion and below signal contraction; an exact reading of 50 suggests neither.

Manufacturing shrank in July for the second straight month, according to the ISM's last report. That raised fears that U.S. factories, a key source of growth since the recession ended three years ago, had begun to falter.

Factories reported less demand in the spring after consumers cut back on spending and businesses invested less in machinery and equipment. Some worried that manufacturing could weaken further in coming months if Europe's financial crisis and slower global growth cut demand for U.S. exports.

Recent data suggest the economy picked up a little in July, which could boost factory production in the second half of the year. Employers added 163,000 jobs, the best hiring since February. And consumers stepped up spending last month after earning a little more.

The government will report on August hiring and unemployment on Friday.

Even with the improvement, the economy continues to struggle.

The economy grew at an annual rate of just 1.7 percent in the April-June quarter, down from growth of 2 percent in the January-March period. Economists are expecting growth for the last half of this year will be around 2 percent.

Growth at or below 2 percent is not enough to lower the unemployment rate, which was 8.3 percent in July. Most expect the unemployment rate to stay above 8 percent for the rest of this year.

Chairman Ben Bernanke last Friday said the Federal Reserve will do more to help the still-struggling U.S. economy.

He stopped short of committing the Fed to any specific move. But in his speech to an annual Fed conference in Jackson Hole in Wyoming, Bernanke said that even with interest rates already at super-low levels, the Fed can do more.

Some economists predict the Fed will unveil some bold new step as soon as its Sept. 12-13 meeting, possibly a third round of bond purchases meant to lower long-term interest rates and encourage more borrowing and spending.

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