U.S. factory, construction data point to tepid growth

Mon Jan 4, 2016 1:29pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing contracted further in December as lower oil prices undercut spending in the energy sector while construction spending fell in November for the first time in nearly 1-1/2 years, suggesting the economy ended 2015 with less momentum.

The downbeat reports on Monday cast a dark cloud over the near-term growth outlook and prompted economists to sharply lower their growth estimates for the fourth quarter.

"The year begins with manufacturing activity shrinking and, looking further in the data, the shrinkage looks to be increasingly sourced in domestic demand rather than exports," said Steve Blitz, chief economist at ITG Research in New York.

The U.S. Institute for Supply Management (ISM) said its index of national factory activity fell to 48.2 from 48.6 in November and is now at its lowest level since June 2009. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which is associated with a recession.

Manufacturing, which accounts for 12 percent of the economy, has also been hammered by a strong dollar, as well as slower global demand and efforts at home by businesses to reduce an excessive inventory build, which are keeping downward pressure on new orders.

The weak reports combined with downbeat factory data from China put pressure on U.S. stocks. Prices for U.S. Treasury debt prices rose, while the dollar trimmed gains versus a basket of currencies.

The ISM said a gauge of new orders rose 3 percentage points, but remained in contractionary territory. Export orders gained 3.5 percentage points to 51.0 last month, suggesting much of the weakness could be concentrated in the energy sector.

Manufacturers in the petroleum and coal products sector said low oil prices were "negatively" impacting oil and gas exploration activities. Their counterparts in the fabricated metal products segment reported that activity was "still very slow due to oil prices."   Continued...

 
An Airbus A321 is being assembled in the final assembly line hangar at the Airbus U.S. Manufacturing Facility in Mobile, Alabama September 13, 2015. REUTERS/Michael Spooneybarger