Manufacturing in U.S. shrinks for third straight month

U.S. manufacturing shrank for a third month in August in the longest decline since the recession ended in 2009, threatening to deprive the world’s largest economy of a driver of growth.

The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Ariz.-based group said today (Sept. 4).

Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction. Measures of orders and production dropped to three-year lows.

Stocks fell on concern American factories, which sparked the U.S. expansion three years ago, are succumbing to a manufacturing slowdown that stretches from Asia to Europe. The data underscore Federal Reserve Chairman Ben Bernanke’s view that the economy is too weak to spur hiring and may require additional monetary stimulus.

“Manufacturing has been one of the stalwarts of an otherwise lackluster recovery but it’s starting to show some cracks,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Ala., who correctly forecast the index. “Until we get more clarity on the fiscal policy outlook here, more clarity on Europe and some signs on the course of China’s economy, manufacturing is just going to languish.”

Demand for autos may prevent bigger declines in manufacturing. U.S. sales at Chrysler Group LLC, Ford Motor Co. and General Motors Co. rose more than analysts’ estimates last month, industry figures showed today. Chrysler deliveries increased 14%, while Ford’s rose 13% and GM’s climbed 10%.

Estimates for the supply managers’ index from the 81 economists surveyed ranged from 48.7 to 51.5. A reading above 42.5 generally indicates an expansion in the overall economy, the ISM has said. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Assembly lines slowed as orders weakened, details of the report showed. At the same time, inventories at manufacturers built up and backlogs eased, indicating the weakness at factories may be extended.

“As I look at this and try to find some rays of sunshine, it’s quite difficult,” Bradley Holcomb, chairman of the ISM survey, said on a conference call with reporters. “I would characterize this as a sobering picture of U.S. manufacturing right now without any clear signs of immediate improvement.”

The group’s production index decreased to 47.2, the weakest since May 2009. The new orders measure fell to 47.1, while the employment index dropped to 51.6, the lowest since November 2009.

The measure of orders waiting to be filled fell to 42.5 from 43. The inventory index rose to 53 from 49.

A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 in August from the reading of 45.3 estimated earlier, Markit said yesterday. The index, which stood at 44 in July, has held below 50 for 13 months.

In China, manufacturing slowed further in August, surveys of purchasing managers showed, with one gauge at the lowest level since March 2009.

The slowdown at U.S. factories comes as 8.3% unemployment restrains consumer demand and cooling global growth reduces new businesses orders. Household spending increased at a 1.7% annual rate in the second quarter, the smallest advance in a year, Commerce Department data show. Corporate purchases of equipment and software rose at a 4.7% pace in that period, the weakest since the third quarter of 2009.

Another report showed construction spending in the U.S. unexpectedly fell in July for the first time in four months as a plunge in home-improvement outlays overshadowed gains in homebuilding.

The 0.9% drop was the biggest decrease in a year and followed a 0.4% gain in June, according to the Commerce Department. Outlays on remodeling projects, which are volatile, slumped 5.5%.

Bernanke said Aug. 31 that the central bank considers additional bond purchases an option to spur growth. Stagnation in the labor market is a “grave concern” because it could create lasting economic damage, he said during a speech in Jackson Hole, Wyo.

The future pace of production also depends on whether global growth continues to cool, damping demand. The euro-area economy shrank from April to June, the third straight quarter without expansion, according to the European Union’s statistics office. China’s growth decelerated last quarter from a year earlier for the six consecutive time.