U.S. manufacturing weakness persists; worst may be over

Mon Nov 2, 2015 12:44pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing activity in October hit a 2-1/2-year low, but a rise in new orders offered hope for a sector buffeted by a strong dollar and relentless spending cuts by energy companies.

Other data on Monday showed construction spending rose in September, indicating the economy remained on firmer ground despite signs of consumer spending cooling.

Given that manufacturing accounts for only 12 percent of the economy, analysts said it was unlikely to influence the U.S. Federal Reserve's decision whether to raise interest rates this year.

"We are marginally encouraged by a pickup in the new orders, but export orders continue to contract. We do not expect the manufacturing data will cause the Fed to push the first rate hike back into 2016," said John Ryding, chief economist at RDQ Economics in New York.

The Institute for Supply Management said its national manufacturing index slipped to 50.1 this month, the lowest level since May 2013, from a reading of 50.2 in September. The index is barely hanging above the 50 mark, the dividing line between expansion and contraction.

Manufacturers continued to cite the dollar's strength and low oil prices as headwinds. The new orders sub-index rose to 52.9 last month from 50.1 in September, but export orders continued to contract. There were modest improvements in supplier deliveries and backlog orders.

In addition, there was a decrease in the share of customers who believed inventories were too high, and the stock of unsold goods at factories also fell. Efforts by businesses to reduce an inventory overhang have weighed on factory activity.

The employment index contracted in October for the first time in six months, hitting its lowest level since August 2009, suggesting more weakness in factory payrolls.   Continued...

 
An SUV moves through the assembly line at the General Motors Assembly Plant in Arlington, Texas June 9, 2015. REUTERS/Mike Stone