U.S. Manufacturing Sector Barely Expanding

Concern over domestic and international economic environment is affecting customers' confidence and willingness to place orders, at least in the short term.

For the second month running in August, the U.S. economy hardly grew, according to The Institute of Supply Management. Its indexed survey of purchasing managers was at 50.6%, down from 50.9% in July, with a reading above 50 indicating growth.

The ISM said overall sentiment in the manufacturing sector "is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

It was the sixth straight month of decline from a post-recession high reading of 61.4% in February.

The data though supported views that the economy had not sunk into contraction in August, and U.S. stocks rose after the data release. ISM said a reading above 42.5% over time "generally" indicates the economy is expanding. But surveyed purchasing managers expressed concerns that the economy was weak. "We continue to post solid numbers, but the situation seems tenuous," said one respondent from the plastics and rubber products industry.

"The August manufacturing report is consistent with recent evidence from regional surveys that output growth in the U.S. factory sector is slowing, even as the impact of the Japanese tsunami wanes, said Cliff Waldman, economist for the Manufacturers Alliance/MAPI. "Disturbingly, the production index fell 3.7 percentage points to 48.6, while new orders data remained in contraction territory for the second consecutive month. Further, the third consecutive month in which the backlog of orders index was below 50% has dour implications for the strength of near-term production activity.

"Amidst slow growth and fears of recession in the U.S. economy, as well as clear evidence of weakening economic activity around the world, the outlook for U.S. manufacturing remains for moderating but positive growth with clear downside risks."

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