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U.S. Manufacturing Sector Contracts For Third Month

Sep. 4, 2012 10:17pm

U.S. factory activity shrank for the third straight month in August as new orders, production, and employment all fell.

The Institute for Supply Management (ISM), a trade group of purchasing managers, said Tuesday its index of manufacturing activity ticked down to 49.6. That’s down from 49.8 in July and the lowest reading in three years. A reading below 50 indicates contraction.

The report followed other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month. And manufacturing in Europe has also stagnated in the face of the region’s financial crisis.

The manufacturing index typically needs to fall to about 43 to suggest the broader economy is shrinking, according to the ISM. Still, growth at or below 2 percent is not enough to significantly lower the unemployment rate, which was 8.3 percent in July.

The stock market fell after the ISM data and a separate report on construction spending were released. Construction spending fell sharply in July. The Dow Jones industrial average dropped 96 points in morning trading.

Indeed, as Zero Hedge puts it, there was a big “miss in construction spending”:

U.S. Manufacturing Shrinks for Third Month in a Row

Courtesy Zero Hedge

“Construction spending … plunged from 0.4% to -0.9%, on expectations of an unchanged print, which was the biggest miss in a year, and the biggest drop in also a year [emphasis added],” the Hedge adds:

U.S. Manufacturing Shrinks for Third Month in a Row

Courtesy Zero Hedge

But what about U.S. factories? After all, since the recession technically ended in 2009, they have more or less been one of the main sources of economic growth and jobs.

The ISM survey showed factories kept hiring in July but at a slower pace. And production dropped sharply to 47.2, the first time it has fallen below 50 since May 2009, when the economy was still technically in recession.

New orders, a sign of future production, also dropped. New export orders increased but remained below 50, contracting for the third straight month. Factories reported less demand in the spring after consumers cut back on spending and businesses invested less in machinery and equipment.

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

The decline in manufacturing activity — compounded with the miss in construction spending –  makes it more likely the Federal Reserve will take steps to “help” the economy. Recall that 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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The Associated Press contributed to this report. Front page photo courtesy the AP.

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Comments (26)

  • Truth1776
    Posted on September 5, 2012 at 2:35pm

    But presbo & co say the economy and jobs are improving – they wouldn’t lie would they?

    Then why am I out of work for over two years and unemployment in the county I live in is 10.1% and nationally 8.3&?

    Why do I see increasing numbers of people at the Christian Care Center where I volunteer growing? Why are we seeing the number of multiple families sharing one house increasing? Why are the number of calls we get from people trying to get help to keep their power/water from being turned off?

    presbo is stuck in a sand trap! In golf I understand you lose a stroke when you have to physically move your ball – presbo should, and will, lose the election!

    Vote out presbo and all socialist dumocrats/rinos in 2012!

    Report this comment

    Truth1776  
  • dnewton
    Posted on September 5, 2012 at 9:39am

    In my state, manufacturing has been going down since 2004, if you correct for the inflated dollar output. Even after paying over $500 million in subsidies to Volkswagon, thus buying 2000 jobs, the county surrounding the new plant lost 8499 industrial jobs in the last nine years of records. There are 95 counties in Tennessee and there are only four counties that have more industrial jobs in 2010 than in 2001. They are mostly rural and two are off the Interstate. I attribute this to taxing labor. The more you tax something, the less you get of it. Manufacturer’s are more able to replace labor for machines.
    The savings in healthcare, social security and the difficulty in human interaction versus interacting with a machine is much higher than in the service industry.

    Report this comment

    dnewton  
    • CLEttinger
      Posted on September 5, 2012 at 12:57pm

      I’m an insurance agent, over the last 4 years new Worker’s Compensation laws/regulations and price increases have made construction companies around here go out of business and many out of the country. The medium size businesses down sized to one man operations to avoid the increases and the few larger companies are complaining that they are getting under-bid by those who dodge the Worker’s Compensation costs. I’ve also notice claims have quadrupled.

      Report this comment

      CLEttinger  
  • nighttrainno9
    Posted on September 4, 2012 at 11:20pm

    The idiot in the WH has no idea whats actually going on,
    his plan to destroy the USA is suceeding and thats all he really cares
    about. He is simply a puppet with the strings being controlled
    by the world bank, in fact he is such a moron, he has no idea
    how business works or how the economy works. It’s painful
    to watch the USA go through the death throes of a dying
    country but it is all biblical.

    Report this comment

    nighttrainno9  
  • Detroit paperboy
    Posted on September 4, 2012 at 11:05pm

    But but but…..you can’t quote bad economic news………..you’re racist !!!!! Even though it’s true, your still racist………..who care about a contraction in manufacturing, ? You’re racist…..

    Report this comment

    Detroit paperboy  
  • mildot rider
    Posted on September 4, 2012 at 11:01pm

    Go figure. Marxist Regime=MELTDOWN!

    Report this comment

    mildot rider  
  • Darmok and Jalad at Tanagra
    Posted on September 4, 2012 at 10:45pm

    So Jobs are contracting, isn’t that good, people are getting contracts, unless you’re in the mob, then contracts aren’t good. Oh, wait, it’s contracting like, shrinking. Maybe that needs to be explained to the world’s smarts man.

    Giehtner: O, look, this quarter, jobs contracted.
    Obama: That’s good.
    Giehtner: No, that’s bad, the contracted.
    OBama: No, contracts are good in business
    Giehtner: Let me put it this way, jobs shrank.
    Obama: Smaller jobs, that’s good, we sell them as “Green” jobs, more economical, you can fit more jobs in the job market, small jobs, not small people. Great Job Timmy.
    Giehtner: Look, Mr. President, this is bad, we can’t sell these as small jobs, what do we have a nation of Leprechauns?
    Obama: I love Lucky Charms….but Moochelle won’t let me eat them. I sneak over to Joe’s house; he always lets me have his lucky charms. I just hate sitting on his lap to eat them.
    Giehtner: I give up. Obama, yes things are looking real good. (I am going to update my resume)
    Obama: See, I am so great; my face will be on Mt Rushmore. Now you got me hungry for Lucky Charms. I guess I better go put on my leather pants.

    Report this comment

    Darmok and Jalad at Tanagra  
  • WAKEUPUSA2012
    Posted on September 4, 2012 at 10:43pm

    The collapse is coming. While it is fun to get into the election season and we all agree Obama must go. This collapse is engineered, meaing the global banking cartel working thru the centeral banks is actively working to collapse our economy. Next week the German equal to the supreme court will rule if their constutition will allow them to keep loaning money to the EU.If the court rules it is not legal, the whole EU will go under. The world will experience a economic shock so awfull, the dollar might collapse as the world currency. You ask why would the engineer a collapse? Dont they know that will only prevent them from making any money? THEY DONT CARE. They dont care about the money, they care about power. The care about controll. They wish to dominate us. They will sit in their private bunkers and let the whole damn world fall apart, then emerge as the saviours as say we need world government and independent nation states will be rolled over. If that sounds like some tin foil hat crazy person in mothers basement rant, then you havent read your bible close enough. They are engineering our food, they are manipulating our weather, they are turning our whole population into walefare junkies. They would also love to start a war with Iran, cause in times of war, nations USUALLY come together. Plus if you look at a map of the middle east you can tell, we are knocking over countrys left and right. Wake up. Quit being played by politicans and media that has been compromised.

    Report this comment

    WAKEUPUSA2012  
    • SolitudeBliss
      Posted on September 4, 2012 at 11:05pm

      You don’t get out much, do you?

      Report this comment

      SolitudeBliss  
    • nighttrainno9
      Posted on September 4, 2012 at 11:13pm

      your pretty much right on the money, especially where the bankers
      are concerned. In the coming civil unrest bankers will be my first
      target.

      Report this comment

      nighttrainno9  
  • Netsurfer2
    Posted on September 4, 2012 at 10:41pm

    My guess is that Obama doesn’t have the money to create more government jobs!

    I got to watch the DNC tonight and saw the MA governor talk about Mitt and the debt of the state! Then I went and looked up all the debt on the web about the state and situation economically! There are more people on welfare and even more debts than ever before to this day!

    In summery, their lies will get them in the end! There is nothing clean about the way they are going about spreading lies! You can find the info on the internet at anytime!

    Get the lawyers out of the white house! 16 Trillion and growing while the Dem’s look the other way!

    Report this comment

    Netsurfer2  
    • Anonymous T. Irrelevant
      Posted on September 4, 2012 at 11:55pm

      Yet, NETSURFER, there are a LOT of dumb people who do not pay attention to what’s going on around them. They only care who is going to be on American Idol, or America’s got Talent, or just use the Internet for FaceBook. They probably haven’t a clue there’s a convention going on. Heck, not long ago, a street test was done. Most of the people couldn’t tell you who the VP was. Years of government schooling and bad parenting have taken it’s toll. I just hope these people are too lazy to vote.

      Report this comment

      Anonymous T. Irrelevant  
    • Walkabout
      Posted on September 4, 2012 at 11:56pm

      Get the Lawyers out & put the economists in? But the economists are split. There are people like Milton Friedman & then their are people like Krugman & Stieglitz. So do we go with the the camp of economists that has the greater numbers?

      Seems to me that a person has to learn economics otherwise they are just voting based on popularity or whatever the crowd thinks is good. Those are the same people who put the lawyers in power by the way. Based on the the psychology & applied psychology (economics that I had ion college plus subsequent reading I’ll go with the Milton Friedman camp (libertarian) with some reservations. Milton Friedman was anti-draft, anti-drug war, free trade & for school choice.

      Still after reading Zero Hedge a person can be humbled very quickly.

      Report this comment

      Walkabout  
  • chips1
    Posted on September 4, 2012 at 10:31pm

    If I don’t have it, I’m not getting it.

    Report this comment

    chips1  
  • justangry
    Posted on September 4, 2012 at 10:28pm

    A lot of folks argue that all these free trade agreements like NAFTA are good for the country, but don’t they just make it tempting for US manufacturers to take their jobs overseas to avoid higher labor costs? Then you have companies dodging taxes like GE. I’ve never really understood this. Something in my gut tells me it’s wrong. Most bills that get bipartisan support from Washington are.

    Report this comment

    justangry  
    • MODEL82A1
      Posted on September 4, 2012 at 10:36pm

      JUST, once again, you proudly admit your abject ignorance of an important issue. Perhaps you should consider educating yourself. A futile suggestion, I know.

      Report this comment

      MODEL82A1  
    • WAKEUPUSA2012
      Posted on September 4, 2012 at 10:48pm

      MODEL82A1

      If you think NAFTA is a good thing, then you must think shipping food middle class jobs over seas, is also good. Its you who shows ignorance, all you have to do is look at a chart of what has happened since NAFTA was enacted.

      http://www.infowars.com/nafta-partners-take-steps-to-boost-trilateral-relationship/

      Report this comment

      WAKEUPUSA2012  
    • MODEL82A1
      Posted on September 4, 2012 at 10:57pm

      WAKEUP, please show me where I expressed the opinion that NAFTA is a good thing. I simply pointed out that JUST freely admitted to not knowing how free trade agreements work.

      Report this comment

      MODEL82A1  
    • MODEL82A1
      Posted on September 4, 2012 at 11:24pm

      JUST, an ad hominem personal attack completely devoid of substance or fact from a pre-programmed Lefty. Big surprise. Not.

      Report this comment

      MODEL82A1  
    • resme
      Posted on September 5, 2012 at 1:19am

      Just, You posted “Who doesn’t love smiling babies” on another article.

      Republicorp and model, They both love dead Muslim children. “They may grow up evil, right?”

      Report this comment

      resme  
  • MODEL82A1
    Posted on September 4, 2012 at 10:24pm

    And tomorrow, the White House will be out touting the expansion of the manufacturing sector over the past three months. I’m telling you, Bizarro World is their actual strategy.

    Report this comment

    MODEL82A1  

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