US factory ac­tiv­ity slows as or­ders drop

Con­struc­tion spend­ing falls, con­sumer spend­ing up 0.1%

Kuwait Times - - BUSINESS -

A mea­sure of US factory ac­tiv­ity fell from a near three-year high in July amid a drop in new or­ders and con­sumer spend­ing barely rose in the prior month, set­ting the econ­omy on a mod­er­ate growth path in the third quar­ter. Other data yes­ter­day showed a sharp drop in con­struc­tion spend­ing in June as in­vest­ment in pub­lic pro­jects recorded its big­gest de­cline since March 2002.

The In­sti­tute for Sup­ply Man­age­ment (ISM) said its in­dex of na­tional factory ac­tiv­ity fell to a read­ing of 56.3 last month from 57.8 in June, which was the high­est level since Au­gust 2014.

A read­ing above 50 in the ISM in­dex in­di­cates an ex­pan­sion in man­u­fac­tur­ing, which ac­counts for about 12 per­cent of the US econ­omy. Man­u­fac­tur­ing is slow­ing as a boost from the en­ergy sec­tor ebbs after a burst in oil well drilling ac­tiv­ity. It is also being hurt by de­clin­ing au­to­mo­bile pro­duc­tion as com­pa­nies re­spond to fall­ing sales that have left them with an in­ven­tory bloat. Mo­tor ve­hi­cle pro­duc­tion has dropped for three straight quar­ters.

Last month, the ISM sur­vey’s pro­duc­tion subindex fell 1.8 points to a read­ing of 60.6. A gauge of new or­ders slipped to 60.4 from 63.5 in June. Though a mea­sure of factory em­ploy­ment dropped two points to 55.2, la­bor mar­ket con­di­tions in the sec­tor are tight­en­ing. Man­u­fac­tur­ers re­ported an in­crease in turnover, with em­ploy­ees leav­ing for other op­por­tu­ni­ties.

The US dol­lar touched a 15-month low against a bas­ket of cur­ren­cies after the data. Prices of US Trea­suries re­versed course to trade higher and US stocks ral­lied, with the Dow Jones In­dus­trial Av­er­age hit­ting a record high.

In a sep­a­rate re­port yes­ter­day, the Com­merce Depart­ment said con­sumer spend­ing, which ac­counts for more than two-thirds of US eco­nomic ac­tiv­ity, edged up 0.1 per­cent in June after a 0.2 per­cent gain in May.

There was also lit­tle sign of in­fla­tion. The per­sonal con­sump­tion ex­pen­di­tures (PCE) price in­dex, ex­clud­ing food and en­ergy, rose 0.1 per­cent in June after a sim­i­lar gain in May. In the 12 months through June, the so-called core PCE price in­dex in­creased 1.5 per­cent after ad­vanc­ing by the same mar­gin in May. The core PCE is the Fed­eral Re­serve’s pre­ferred in­fla­tion mea­sure. The US cen­tral bank has a 2 per­cent tar­get.

The data was in­cluded in the sec­ond-quar­ter gross do­mes­tic prod­uct re­port pub­lished last week. That re­port showed con­sumer spend­ing in­creas­ing at a 2.8 per­cent an­nu­al­ized rate, which ac­counted for the bulk of the econ­omy’s 2.6 per­cent growth pace dur­ing the quar­ter. But that es­ti­mate could be re­vised lower in the wake of a re­port from the Com­merce Depart­ment yes­ter­day show­ing con­struc­tion spend­ing tum­bling 1.3 per- cent to $1.21 tril­lion, the low­est level since Sep­tem­ber 2016.

Con­struc­tion spend­ing was weighed down by a 5.4 per­cent plunge in pub­lic in­vest­ment, which the was big­gest de­cline since March 2002. The drop was across fed­eral, state and lo­cal gov­ern­ments. Hopes that Pres­i­dent Don­ald Trump’s vow to boost in­fra­struc­ture spend­ing would kick off a con­struc­tion boom have largely faded since the be­gin­ning of the year. The con­sumer spend­ing re­port showed in­fla­tion-ad­justed con­sump­tion was un­changed in June after a rise of 0.2 per­cent in May. June’s flat read­ing points to mod­er­ate con­sumer spend­ing growth in the third quar­ter.

Since ac­cel­er­at­ing at a 3.8 per­cent pace in the sec­ond quar­ter of 2016, con­sumer spend­ing growth has re­mained be­low a 3.0 per­cent rate, re­strained by slug­gish wage gains.

In June, per­sonal in­come was un­changed. That was the weak­est read­ing since a 0.1 per­cent dip in Novem­ber 2016 and fol­lowed a 0.3 per­cent in­crease in May.

Wages and salaries in­creased 0.4 per­cent in June. Per­sonal div­i­dend in­come de­clined 3.0 per­cent in June after surg­ing 4.8 per­cent in May. In­come at the dis­posal of house­holds after ac­count­ing for in­fla­tion fell 0.1 per­cent, the largest de­crease since last December. Sav­ings slipped to $546.4 bil­lion in June from $564.7 bil­lion in May. —Reuters

—AP

FRANK­FURT: The sky­line of the bank­ing district is re­flected in a pud­dle after a heavy thun­der­storm dur­ing the night in Frank­furt yes­ter­day.

—AP

WASH­ING­TON: A Boe­ing 787 being built for Nor­we­gian Air Shut­tle at Boe­ing Co’s as­sem­bly fa­cil­ity, in Everett, Wash­ing­ton. The In­sti­tute for Sup­ply Man­age­ment, a trade group of pur­chas­ing man­agers, is­sued its in­dex of man­u­fac­tur­ing ac­tiv­ity for July yes­ter­day.

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