U.S. Factories Probably Stagnated for Second Month in August
Written on September 2, 2008
Manufacturing in the U.S. stagnated in August for a second month as weakening domestic demand countered rising exports, economists said before a report today.
The Institute for Supply Management's factory index was unchanged at 50.0, according to the median estimate in a Bloomberg survey before today's report from the Tempe, Arizona- based group. The ISM gauge has hovered near 50, the dividing line between expansion and contraction, for the past year.
Manufacturers are paring output and investments as tumbling home prices and high gasoline and other commodity costs squeeze demand. Surging exports are keeping factories from stumbling as the broader economy slows.
“Exports continue to save the day as strong demand from abroad is putting a floor under manufacturing,'' said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. “Final demand will remain weak as the fiscal stimulus boost fades and tight credit conditions hurt investment.''
Economists' forecasts ranged from 48.5 to 52. The ISM will release the report at 10 a.m. New York time.
A separate report from the Commerce Department at the same time may show construction spending fell 0.4 percent in July for a second month, according to economists surveyed by Bloomberg.
The economy will grow at an average 0.7 percent pace in the second half of the year, economists surveyed by Bloomberg News forecast in the first week of August free credit report .com. Last week, the government reported the economy grew at a better-than-forecast 3.3 percent annual rate in the second quarter, following 0.9 percent in the first three months of the year.
Shrinking Trade Deficit
The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The smaller gap added 3.1 percentage points to growth, the most since 1980. That is likely to diminish as overseas economies slow and the dollar strengthens.
Manufacturers have also turned cautious as consumer spending weakens as the effects of tax rebate checks fade and Americans continue to cope with tumbling house prices and gasoline that topped $4 a gallon two months ago.
The auto industry is at the forefront of the manufacturing slump. Sales of cars and light trucks in July slid to a 12.5 million annual rate, the lowest level since 1993, according to industry figures.
General Motors Corp. Chief Executive Officer Rick Wagoner said Aug. 16 he's not yet seeing signs of a recovery in the U.S. economy or in vehicle sales.
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