Auto sales surge; construction falls in June, July
By The Associated Press
September 10, 2012
WASHINGTON — U.S. factory activity shrank for the third straight month in August as new orders, production and employment all fell. The report adds to other signs that manufacturing is struggling around the globe.
The Institute for Supply Management, a trade group of purchasing managers, said Tuesday its index of manufacturing activity ticked down to 49.6. That’s down from 49.8 in July and the lowest reading in three years. A reading below 50 indicates contraction.
Two other reports showed strength in auto sales and continued activity in home and apartment construction.
AUTO SALES: Strong pickup demand fueled a big jump in U.S. auto sales last month. GM’s August U.S. sales rose 10 percent compared with a year earlier, while Ford’s rose 13 percent and Chrysler’s 14 percent.
Toyota now has a full inventory of new cars at dealers and continued its recovery from bad sales last year. Sales grew almost 46 percent.
Honda, which like Toyota saw its factories hobbled by the earthquake in Japan last year, reported a 60 percent increase. Kia sales rose 21.5 percent from a year earlier, while Hyundai’s rose only 4 percent over strong numbers from August of 2011.
Volkswagen continued its staggering growth, 63 percent.
CONSTRUCTION: U.S. construction spending fell in July from June by the largest amount in a year, weighed down by a big drop in home improvement projects. But spending on construction of single-family homes and apartments increased again, a hopeful sign for the modest housing recovery.
The Commerce Department said Tuesday that overall construction spending declined 0.9 percent in July. It followed three months of gains, which were driven by increases in home and apartment construction.
The June decline left spending at a seasonally adjusted annual rate of $834.4 billion. That’s nearly 12 percent above a 12-year low hit in February 2011. Construction activity is roughly half of what economists consider to be healthy.
Weak consumer spending and steady declines in business orders for large machinery and other capital goods are slowing factory output.
The report Tuesday followed other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month. And manufacturing in Europe has also stagnated in the face of the region’s financial crisis.
Paul Dales, senior U.S. economist at Capital Economics, said continued uncertainty caused by the recession in Europe, the slowdown in Asia and impending tax increases and spending cuts in the United States “is taking its toll on activity.”
“At this level, the index remains consistent with … growth in the third quarter of between 1.5 percent and 2 percent,” Dales said in an email to clients.
The manufacturing index typically needs to fall to about 43 to suggest the broader economy is shrinking, according to the ISM. Still, growth at or below 2 percent is not enough to significantly lower the unemployment rate, which was 8.3 percent in July.
And the slight decline in manufacturing activity also makes it more likely the Federal Reserve will take steps at its meeting next week to boost economic growth, Dales said.
U.S. factories have been a key source of jobs and growth since the recession ended in June 2009. But the sector has shown signs of weakness in recent months.
The ISM survey showed factories kept hiring in July but at a slower pace. And production dropped sharply to 47.2, the first time it has fallen below 50 since May 2009, when the economy was in recession.
New orders, a sign of future production, also dropped. New export orders increased but remained below 50, contracting for the third straight month.
Factories reported less demand in the spring after consumers cut back on spending and businesses invested less in machinery and equipment. Some worried that manufacturing could weaken further in coming months if Europe’s financial crisis and slower global growth cut demand for U.S. exports.
Recent data suggest the economy picked up a little in July, which could boost factory production in the second half of the year. Employers added 163,000 jobs, the best hiring since February. And consumers stepped up spending last month after earning a little more.
The government will report on August hiring and unemployment on Friday.