Manufacturing Growth Nearly Halts in July

U.S. manufacturing growth nearly ground to a halt in July, a report said Thursday, showing the economy has cooled significantly from earlier this year and raising concerns that the recovery could be in jeopardy.

Spending on new construction projects also slumped for a second consecutive month in June to its slowest pace in nearly two years, while first-time claims for jobless benefits edged up in the last week, two separate government reports said.

Taken together with news this week that the economy grew at an anemic 1.1% pace in the second quarter, the data cast further doubt on the durability of the recovery.

The Institute for Supply Management said its monthly manufacturing index fell in July to its lowest level since January, down to 50.5 from 56.2 in June. Although that was the sixth straight month of growth, the index showed manufacturing was barely expanding, at a level just above 50.

The fall was much sharper than Wall Street expected and was a major slowdown from June, which registered the fastest growth in more than two years. Manufacturing makes up about one-sixth of the economy.

A punishing stock market sell-off in July had caused businesses to slam on the brakes after a boost of confidence about growth prospects earlier in the year, said Norbert Ore of the ISM.

After a powerful run-off of inventories left over from boom times, factories rapidly boosted production earlier this year to meet rising demand. But as businesses became more conservative about the outlook for demand, they scaled back production.

In a sign that production probably will fall further in future months as factories curtail inventory-building, the new orders index, which measures future demand for goods, fell more than 10 points in July, to 50.4 from 60.8.

With fewer goods coming off assembly lines and orders drying up, factories also accelerated layoffs during the month, extending a trend since mid-2000, with about 1.8 million factory workers losing their jobs.

The ISM employment index fell in July to 45.0 from 49.7 in June, its 22nd-straight month below 50.

Meanwhile, construction spending fell 2.2% in June to a seasonally adjusted rate of $820.8 billion, the Commerce Department said. That followed a revised 2% decline in May spending, which originally had been reported as a smaller 0.7% drop.

That was the slowest spending rate since August 2000 and was off 3.7% compared with June 2001.

The sharp drop in June construction spending, which was much deeper than expected, raised concerns that the already-sluggish 1.1% second-quarter gross domestic product growth could be revised downward.

Construction spending on new commercial buildings fell 3.4% to a $165.4-billion annual rate--its slowest pace since September 1996--reflecting weak demand among firms for new properties. Residential demand, buoyed by low mortgage rates, held up better, dropping only 0.9% in June.

Separately, first-time claims for jobless insurance--an early reading on the resilience of the labor market--rose by 20,000 to 387,000 in the July 27 week from 367,000 in the previous week, the Labor Department said.

The four-week moving average rose to 386,000 in the week ended July 27, up from 385,750 the previous week, but below the 397,000 reported for the same period a year ago when the country was in the midst of the 2001 recession.