Factory Activity Slows; Construction Spending Up Solidly

Before you go, we thought you'd like these...
Before you go close icon
Economy Manufacturing
J Pat Carter/AP
By Lucia Mutikani

WASHINGTON -- U.S. factory activity hit a more than two-year low in August as manufacturers struggled with a strong dollar, weak global demand and the lingering effects of deep spending cuts in the energy sector.

Other data Tuesday, however, suggested the economy appeared to be on solid footing, with construction spending rising in July to its highest level since 2008.

The Institute for Supply Management said its national factory activity index fell to 51.1 last month, the lowest reading since May 2013, from 52.7 in July. A reading above 50 indicates expansion in the manufacturing sector.

The decline in the index also likely reflected the recent global equities sell-off, which was triggered by concerns over China's slowing economy. The ISM's new orders subindex fell to 51.7, also the lowest level since May 2013, from 56.5 in July.

The employment index slipped to 51.2 last month from a reading of 52.7 in July.

Manufacturing, which accounts for 12 percent of the U.S. economy, has been under pressure from the strength of the dollar, which has gained 16.8 percent against the currencies of the United States' main trading partners since June 2014.

A more than 60 percent plunge in crude oil prices since June last year has led to deep spending cuts in the energy sector.

The U.S. dollar fell against a basket of currencies after the data, while U.S. stocks were trading sharply lower. Prices for shorter-maturity U.S. government debt rose.

But apart from manufacturing, the economy is thriving. In a separate report, the Commerce Department said construction spending increased 0.7 percent to $1.08 trillion, the highest level since May 2008, after a similar gain in June.

Construction spending has increased for eight straight months and was as up 13.7 percent compared to July of last year.

The construction spending report rounded off a month of solid data that suggested the economy had retained much of its strength from the second quarter, when it expanded at a 3.7 percent annual pace. July data for consumer spending, industrial production, business spending, housing and employment painted a fairly upbeat picture of the economy.

Construction spending in July was buoyed by a 1.3 percent jump in private construction spending to the highest level since April 2008. Spending on private non-residential construction projects surged 1.5 percent to the highest level since October 2008.

Spending on private residential construction increased 1.1 percent in July to a near 7½-year high, reflecting gains in home building.

Public construction outlays, however, fell 1 percent. Spending on state and local government projects, which is the largest portion of the public sector segment, dropped 1.1 percent. Federal government outlays rose 0.9 percent.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Factory Activity Slows; Construction Spending Up Solidly
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
Read Full Story

People are Reading