U.S. manufacturing shrank for third month in August, report says

U.S. factory activity shrank for a third straight month in August, and construction spending in July suffered its deepest slump in a year, economic reports show.

The Institute for Supply Management’s index of manufacturing activity fell slightly to 49.6 last month, down from 49.8 in July and the lowest level in three years. It’s the first time the index has stayed below 50 for three straight months since July 2009, a month after the recession officially ended.

Manufacturing has slumped as American businesses have scaled back demand for machinery, equipment and other investments. It’s also contracting in just about every major economy overseas, including the 17 countries that use the euro, plus Britain, China, Japan and Brazil. In China, factory activity fell last month to its lowest level in more than three years.

A report by the Commerce Department showed that construction spending tumbled 0.9% in July after four straight months of gains, though outlays for new single-family homes improved.

The value of building projects nationwide slipped to a seasonally adjusted annual rate of $834.4 billion last month — half of what experts consider healthy and a reversal of June’s 0.4% boost.

Compared with July 2011, however, the gauge is up 9.3%.

The weak economic reports may help persuade the Federal Reserve to announce some new action after its meeting next week to try to boost growth.

“The manufacturing recovery is at least temporarily out of steam,” said Nigel Gault, chief U.S. economist at IHS Global Insight.

A reading below 50 indicates contraction in the sector. But the index typically must fall to about 43 to indicate that the overall economy is in recession, according to the Institute for Supply Management.

Paul Dales, senior U.S. economist at Capital Economics, said the latest survey suggests that the economy is growing at an annual rate between 1.5% and 2% in the July-September quarter. Growth at or below 2% isn’t enough to significantly lower the unemployment rate, which was 8.3% in July.