U.S. factory activity shrinks for first time in 6 months

Thursday September 01, 2016
Written by Christopher S. Rugaber, The Associated Press
Sept. 1, 2016 - U.S. manufacturing contracted last month for the first time since February, as new orders and output plummeted and factories cut jobs.

The Institute for Supply Management said today that its manufacturing index dropped to 49.4 in August from 52.6 in July. Any reading below 50 signals contraction.

The report suggests that manufacturers continue to struggle as businesses spend less on machinery, computers and other large equipment. Auto sales have also levelled off this year after reaching a record level in 2015.

A measure of employment fell to 48.3, its second straight month of decline. That means manufacturers are still laying off workers.

Orders for new goods fell to the lowest level since December, a sign the weakness may persist. And a gauge of production plunged to the lowest level in four years.

U.S. manufacturing had shown signs of pulling out of an 18-month slump, but Friday’s report indicates that challenges remain. The strong dollar and a collapse in oil prices had reduced factory exports and slashed demand for steel pipe and other drilling equipment.

Yet oil prices have stabilized and many companies appear to have adjusted to the dollar’s strength. Export orders grew in August, according to the ISM.

In July, factory output jumped 0.5 per cent, the most in a year, according to the Federal Reserve.

Orders for long-lasting manufactured goods, which includes industrial equipment, cars and appliances, also increased in July. A category of orders that excludes volatile items such as aircraft and tracks business investment rose by the most in six months.

Even so, manufacturing firms have been slowly cutting jobs, shedding 31,000 in the past year.

The Institute for Supply Management is a trade group of purchasing managers. It surveys about 200 manufacturers every month.

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