Factory Growth Stalls in August

U.S. manufacturing barely grew in August after a sharp setback a month earlier, a report said Tuesday, stoking worries the weak economic recovery may stagnate more in coming months.

The Institute for Supply Management said its closely watched index of factory business conditions was unchanged in August at 50.5, posting a seventh month of growth but coming in below expectations of a rise to 51.6. The index plunged nearly 6 points in July, raising fears of a double-dip recession. Any reading above 50 signals growth; one below 50 indicates contraction in a sector that makes up about one-sixth of the U.S. economy.

In what ISM said was a cause of concern for manufacturers for the rest of the year, the new orders index fell in August to 49.7 after tumbling more than 10 points in July to 50.4.

That showed new orders, a key source of future growth and production, declining for the first time since November and raised the prospect that factory output could shrink later in the year. Only eight of 20 industries posted growth in August, ISM said.

“It’s not making anybody happy about the economy,” said Cary Leahey, senior U.S. economist at Deutsche Bank Securities.

After boosting production earlier in the year to replenish depleted inventories, factories have scaled back output gradually and have been reluctant to hire new workers or make investments.

Norbert Ore, head of the ISM survey committee, said that another month showing new orders close to the unchanged level would “indicate real softness in the balance of the second half.” He said the survey did not suggest a coming contraction in manufacturing.

Layoffs continued at factories, extending a trend seen since mid-2000 even as the employment index edged up to 45.8 in August from 45.0 in July.

But in a sign that the run-up in prices may be abating, the prices paid index fell sharply in August to 61.5 from 68.3 a month earlier.