US manufacturing grew at its slowest pace in two years in July as new orders contracted, casting doubt on expectations the faltering recovery would quickly regain steam.
The Institute for Supply Management said today its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June. Economists had expected a reading of 54.9. A reading below 50 indicates contraction in manufacturing.
The US economy almost ground to a halt in the first half of the year, data showed on Friday, with output rising at a tepid 1.3% annual pace in the second quarter after expanding at just a 0.4% rate in the first three months.
Analysts had pinned the slowdown on a confluence of temporary factors, but signs of a pickup are proving elusive.
US stocks, which had opened higher on relief lawmakers in Washington had struck a deal to ward off a possible national default, turned negative on the weak factory data. European shares, including Dublin stocks, also reversed their earlier gains to close sharply lower.
The slowdown in the US factory sector was part of a world-wide trend, with global manufacturing activity expanding at the weakest rate since just after the 2009 recession.
Manufacturing, which accounts for about 12% of US gross domestic product, has carried the weak recovery from the recession. However, activity slowed sharply in May as supply chain disruptions from Japan's earthquake-related disasters curbed production.
Analysts had expected activity to pick up as those disruptions eased. Last month, the factory sector was held back by weak new orders, which fell to their lowest level in two years. An index measuring prices paid also fell, as did a gauge of employment.
Analysts said the report suggested the economy would grow no better than a 2% pace in the third quarter, a rate that would do little if anything to lower unemployment.
The US Federal Reserve and many economists have been pinning hopes for a rebound in the labour market, where the unemployment rate is a painfully high 9.2%, on stronger growth in the second half of the year. The Fed's most recent forecast for all of 2011 was for growth between 2.7% and 2.9%.
A report on Friday is expected to show non-farm employment likely rose by 85,000 in July, an improvement from June's paltry 18,000 gain but disappointing nonetheless.
A separate report from the Commerce Department today showed that construction spending advanced 0.2% in June, with private construction spending rising 0.8% to a seven-month high but public projects dropping 0.7%.
