WASHINGTON -- A strong dollar and China's economic slowdown dragged growth at U.S. factories in August to the lowest level since May 2013.
The Institute for Supply Management reported Tuesday that its manufacturing index slid to 51.1 last month from 52.7 in July. It was the second-straight drop; economists had been expecting the index to rebound modestly in August. Anything above 50 signals growth.
The report suggests that a strong dollar and slowing growth in China and other foreign markets may be taking a toll on U.S. manufacturers and perhaps the overall American economy. The rising dollar makes U.S. goods more expensive in foreign markets.
"It raises a warning flag about the outlook," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. "We're going to have an inventory adjustment and, on top of that, weak exports are going to remain a weight. We'll see a period of time when manufacturing is soft."
While producers are struggling, the U.S. economy is getting some strength from improving construction activity. Outlays for residential and nonresidential projects climbed 0.7 percent in July, according to the Commerce Department. Upward revisions to the previous two months prompted some economists to mark up their tracking estimates for second-quarter growth.
The ISM, a trade group of purchasing managers, reported that growth fell in U.S. factory production, employment and exports. Raw materials prices dropped for the 10th straight month. The index is down from 58.1 last August.
Joshua Shapiro, chief U.S. economist at MFR Inc., said the August reading for U.S. manufacturers "does raise a warning flag concerning overall real economic growth, particularly should the weakness be sustained in September."
For now, the U.S. economy looks solid.
The Commerce Department last week reported that the American economy grew at an impressive 3.7 percent annual pace from April through June. Separately, Commerce Department officials said that orders to U.S. factories for long-lasting durable goods rose for a second month in July. Even better, a key category that tracks business investment plans posted the biggest increase in 13 months.
The job market is solid. Employers are adding a healthy 211,000 jobs a month so far this year. And unemployment is at a seven-year low 5.3 percent.
Bradley Holcomb, chairman of the ISM's manufacturing survey committee, said factories' customers may have shaken by the recent drop in stock prices on Wall Street and postponed orders until they regain confidence. "China, in the same fashion, does impact us both emotionally and directly," he said.
Tuesday's report from the ISM found that 10 of 18 industries reported growth last month and six contracted.
Federal Reserve policy makers are monitoring incoming data for a better read on the outlook.
New York Fed President William C. Dudley said Aug. 26 that turbulence in financial markets has made the case for a September move to raise the Fed's benchmark interest rate "less compelling to me than it was a few weeks ago." Fed Vice Chairman Stanley Fischer kept the door open to an interest-rate rise next month, saying in a speech on Saturday that "with inflation low, we can probably remove accommodation at a gradual pace."
Information for this article was contribute by Paul Wiseman of The Associated Press and by Shobhana Chandra and Chris Middleton of Bloomberg News.
Business on 09/02/2015