Manufacturing in the U.S. contracted for a third month in August, the longest slide since the recession ended and a sign the expansion is at risk of losing a source of strength.
The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today. Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction. Measures of orders, production and employment were the weakest since 2009.
Stocks fell on concern American factories, which sparked the U.S. expansion three years ago, are succumbing to a manufacturing slowdown that stretches from Asia to Europe. The possibility that taxes will rise and government outlays will shrink if U.S. lawmakers don’t act by January is also shaking confidence and causing consumers and businesses to curb spending.
“Manufacturing has been one of the stalwarts of an otherwise lackluster recovery but it’s starting to show some cracks,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who correctly forecast the index. “Until we get more clarity on the fiscal policy outlook here, more clarity on Europe and some signs on the course of China’s economy, manufacturing is just going to languish.”
Stocks fell following a two-week decline in the Standard & Poor’s 500 Index, as the report fueled concern the recovery is stumbling. The S&P 500 dropped 0.5 percent to 1,399.17 at 10:44 a.m. in New York. The yield on the benchmark 10-year Treasury note was little changed at 1.55 percent.
Estimates for the index from the 81 economists surveyed ranged from 48.7 to 51.5. A reading above 42.5 generally indicates an expansion in the overall economy, the ISM has said. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.
“As I look at this and try to find some rays of sunshine, it’s quite difficult,” Bradley Holcomb, chairman of the ISM survey, said on a conference call with reporters. “I would characterize this as a sobering picture of U.S. manufacturing right now without any clear signs of immediate improvement.”
The group’s production index decreased to 47.2, the weakest since May 2009, from 51.3 in July. The new orders measure fell to 47.1, the lowest since April 2009, from 48, and the gauge of export demand rose to 47 from 46.5.
The employment index fell to 51.6, the lowest since November 2009, from 52 the prior month.
The index of prices paid climbed to 54 from 39.5. A measure of supplier deliveries increased to 49.3 from 48.7.
The measure of orders waiting to be filled fell to 42.5 from 43. The inventory index rose to 53 from 49, while a gauge of customer stockpiles was fell to 49 from 49.5.
The Markit Economics final index of manufacturing in the U.S. was little changed at 51.5 in August after 51.4 a month earlier, the London-based group said today. The final figure compared with an initial August reading of 51.9.
In the euro area, manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter.
A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, Markit said yesterday. The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction.
In China, manufacturing slowed further in August, surveys of purchasing managers showed, with one gauge at the lowest level since March 2009. A factory index released yesterday by HSBC Holdings Plc and Markit dropped to 47.6, the lowest in more than three years.
Other reports show U.S. manufacturing, which accounts for about 12 percent of the economy, weakened last month. Factory activity in the New York region contracted in August for the first time in 10 months, and production in the Philadelphia-area shrank for a fourth month, Federal Reserve reports showed.
The Institute for Supply Management-Chicago Inc.’s business barometer also eased in August, indicating the pace of expansion was moderating and that companies may hold the line on production until sales pick up.
“Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, output or orders” the Fed said last week in its Beige Book business survey, which reflected information collected on or before Aug. 20.
The slowdown at factories comes as 8.3 percent unemployment restrains consumer demand and cooling global growth reduces new businesses orders. Household spending increased at a 1.7 percent annual rate in the second quarter, the smallest advance in a year, Commerce Department data show. Corporate spending on equipment and software rose at a 4.7 percent pace in that period, the weakest since the third quarter of 2009.
Fed Chairman Ben S. Bernanke said Aug. 31 that the central bank considers additional bond purchases an option to spur growth. Stagnation in the labor market is a “grave concern” because it could create lasting economic damage, he said during a speech in Jackson Hole, Wyoming.
The future pace of production also depends on whether global growth continues to cool, damping demand. The euro-area economy shrank from April to June, the third straight quarter without expansion, according to the European Union’s statistics office. China’s growth decelerated last quarter from a year earlier for the six consecutive time.
“We remain cognizant that there is the potential for further deterioration of the world economies,” Rick Cote, president and chief operating officer of watchmaker Movado Group Inc. (MOV:US), said during an Aug. 28 earnings call. “Our plans continue to anticipate moderate growth in North America, modest growth in Northern Europe, declines in Southern Europe and solid growth in Asia and South America.”
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