Reuters reported that US manufacturing grew at its slowest pace in two years in July as new orders contracted, casting doubt on expectations the faltering recovery would quickly regain steam.
The Institute for Supply Management said that its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June.
Economists had expected a reading of 54.9. A reading below 50 indicates a contraction in manufacturing. The economy almost ground to a halt in the first half of the year, with output rising at a tepid 1.3% annual pace in the second quarter after expanding at just a 0.4% rate in the first three months.
Analysts had pinned the slowdown on temporary factors, but signs of a pickup are proving elusive and the factory data led some economists to revisit their forecasts.
Mr Paul Dales, an economist for Capital Economics in Toronto, said that "The recent easing in economic growth is increasingly looking more like a sustained slowdown than a short lived soft patch."
US stocks, which opened higher on relief lawmakers in Washington, had struck a deal to ward off a national default, turned negative on the weak factory data. The Standard & Poor's 500 Index, SPX closed slightly lower on the day.
Prices for US government bonds rose, while economic worries lifted the dollar against the euro as investors exited riskier bets. The slowdown in the US factory sector was part of a world wide trend, with global manufacturing activity expanding at the weakest rate since just after the 2009 recession.
Economists have said the prospect the United States could default on its obligations had cast a chill over the economy in July. The deal to lift the nation's USD 14.3 trillion debt limit reached on Sunday offered hope of better times ahead.
Manufacturing, which accounts for about 12% of US gross domestic product, has carried the weak recovery from the recession. However, activity slowed sharply in May as supply chain disruptions from Japan's earthquake related disasters curbed production. Analysts had expected activity to accelerate as those disruptions eased.
In July 2011, factories were held back by weak orders, which hit their lowest level since June 2009. An index measuring prices paid also fell, as did a gauge of employment.
Economists at Wells Fargo Securities wrote in a research note that "Since orders are a leading indicator, the drop in this index suggests the second half pickup in growth will be far less than some had estimated."
A Reuter's poll of economists released on July 14th 2011 showed forecasters expected growth over the second half of the year to come in at around a 3% pace. An increasing number are now warning that that could be hard to achieve.
Separate data from the Commerce Department showed construction spending advanced 0.2% in June, with private construction spending rising 0.8% to a seven month high but public projects dropping 0.7%.
(Sourced from www.reuters.com)
