US factory activity slows, construction spending edges up

US factory activity slows, construction spending edges up

US construction
File photo of construction towers above the skyline in Miami, Florida. (REUTERS/Bryan Woolston)

WASHINGTON: US manufacturing activity slowed in September as growth in new orders moderated sharply, but factories hired more workers, pointing to sustained strength in the sector.

The Institute for Supply Management (ISM) said its index of national factory activity dropped 1.5 points to a reading of 59.8 last month from 61.3 in August, which was the highest since May 2004. A reading above 50 indicates growth in manufacturing, which accounts for about 12 per cent of the US economy.

The ISM continued to describe demand as remaining "robust." The ISM also noted that "the nation's employment resource and supply chains continued to struggle, but to a lesser degree." 

It said factories continued to be "overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations."

President Donald Trump's "America First" trade policy have left the United States embroiled in a bitter trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada and Mexico.

Washington last week slapped tariffs on US$200 billion worth of Chinese goods, with Beijing retaliating with duties on US$60 billion worth of US products. The US and China had already imposed tariffs on US$50 billion worth of each other's goods.

While data have suggested little impact on the economy so far from the tariffs, analysts warn that the import duties could disrupt supply chains, undercut business investment and slow the economy's momentum. 

The economy grew at a 4.2 per cent annualised rate in the second quarter, almost double the 2.2 per cent in the January-March period.

The ISM's new orders sub-index fell to a reading of 61.8 last month from 65.1 in August. A measure of export orders, however, rose last month. The survey's employment measure rose to 58.8, the highest reading since February from 58.5 in August.

US financial markets were little moved by the data.

A second report from the Commerce Department showed construction spending edged up 0.1 per cent in August. Data for July was revised up to show construction outlays rising 0.2 per cent instead of the previously reported 0.1 per cent gain.

Economists polled by Reuters had forecast construction spending increasing 0.4 per cent in August. Construction spending rose 6.5 per cent on a year-on-year basis.

Spending on public construction projects jumped 2.0 per cent in August to the highest level since July 2009. That followed a 1.7 per cent increase in July. Spending on federal government construction projects soared 5.9 per cent to a 10-month high after increasing 2.3 per cent in July.

State and local government construction outlays accelerated 1.7 per cent in August to the highest level since March 2009. That followed a 1.6 per cent rise in July.

But spending on private construction projects fell 0.5 per cent in August after decreasing 0.2 per cent in July. Private construction outlays have now declined for three straight months. Investment in private residential projects fell 0.7 per cent in August after gaining 0.2 per cent in July.

Homebuilding has been constrained by rising material costs as well as persistent land and labour shortages. Residential investment contracted in the first half of the year and is expected to have declined further in the third quarter.

Spending on private nonresidential structures, which includes manufacturing and power plants, slipped 0.2 per cent in August after declining 0.8 per cent in July.

Source: Reuters