Manufacturing growth slowed in August, but didn't contract as some analysts had feared. Meanwhile, builders cut back on spending by the largest amount in six months in July, with sharp reductions in government building projects.
The 25th straight month of growth in manufacturing activity was a hopeful sign that U.S. factories weathered a difficult summer for the economy.
The Institute for Supply Management said Thursday that its manufacturing index slipped to 50.6 last month, down slightly from a reading of 50.9.
Stocks rose after the report showed the industry didn't contract. Economists had forecast the index to come in below 50, the level that separate growth from contraction, for the first time since July 2009 one month after the recession ended.
Still, the report suggests manufacturing is weak. Orders contracted, though at a slower pace than the previous month. Production shrank for the first time in 26 months.
"The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customer's confidence and willingness to place orders, at least in the short term," said Bradley Holcomb, the chair of the ISM's survey committee.
The economy expanded at an annual rate of just 0.7 percent in the first half of the year, the weakest six months of growth since the recession officially ended.
Manufacturing has grown in all but one month since the recession ended. But it slowed this spring after the Japan crisis disrupted supply chains, which affected U.S. factories.
A survey of regional manufacturers by the Federal Reserve Bank of Philadelphia showed that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. Surveys by the New York Fed and Richmond Fed also pointed to slowdowns in those areas.
Construction Spending Falls
Separately, the Commerce Department said construction spending fell 1.3 percent in July to a seasonally adjusted annual rate of $789.5 billion. That is 3.5 percent above an 11-year low hit in March but it is still only about half the $1.5 trillion that economists view as a healthy level for construction.
Economists say it could take four years before construction activity returns to more normal levels.
The weakness in July reflected a 2.1 percent drop in spending on government building projects, which fell to the slowest pace since late 2006.
Spending on residential construction fell 1.4 percent, reflecting a big drop in spending on home improvement projects. Spending on new homes and apartments showed small increases with total residential construction standing at an annual rate of $248.1 billion.
The 0.4 percent drop in non-residential spending, to an annual rate of $266.4 billion, reflected declines in spending on hotels, recreation facilities and factories.
The drop in spending for government projects pushed this sector down to an annual rate of $275 billion, the lowest level since late 2006. State and local governments have been forced to cut back because of severe budget problems while the federal government has come under pressure from a drive to get control of soaring budget deficits.
Housing has been a drag on the economy and is a key reason the economy has struggled to recover two years after the recession officially ended.
High unemployment, larger down payment requirements and tighter credit are preventing many buyers from entering the market. Many who can afford to buy are waiting because they are worried prices have yet to hit bottom.
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