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US factory activity dips; construction spending weak

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US manufacturing activity slowed in July as orders fell broadly, while a drop in construction spending in June suggested a downward revision to the second-quarter economic growth estimate published last week.

[WASHINGTON] US manufacturing activity slowed in July as orders fell broadly, while a drop in construction spending in June suggested a downward revision to the second-quarter economic growth estimate published last week.

The Institute for Supply Management (ISM) said its index of national factory activity slipped 0.6 percentage point to a reading of 52.6 last month. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 per cent of the US economy.

Manufacturing remains constrained by the lagging effects of the dollar's rally and an oil price plunge between June 2014 and December 2015, which have hurt exports and undercut business spending.

Although the ISM index has remained above expansion territory for five consecutive months, so-called hard data on manufacturing has been generally weak amid soft business spending. Last month, manufacturers reported declines in new orders, export orders and order backlogs.

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Factory employment also fell, though production increased.

Prices of US Treasuries pared losses after the data, while the dollar was stronger against a basket of currencies. US stocks were trading higher.

In a separate report, the Commerce Department said construction spending declined 0.6 per cent to its lowest level since June 2015 after dipping 0.1 per cent May. June marked the third straight month of declines in outlays.

Economists polled by Reuters had forecast construction spending rising 0.5 per cent in June after a previously reported 0.8 per cent drop in May. Their June estimates were largely based on the government's assumptions for private residential and nonresidential construction spending in the advance GDP report.

The government reported on Friday that gross domestic product increased at a 1.2 per cent annual rate in the second quarter after rising at a 0.8 per cent pace in the January-March period. Weak spending on home building and nonresidential structures, including gas and oil well drilling, contributed to anemic growth in the last quarter.

In June, construction spending was held down by a 0.6 per cent drop in private construction. Outlays on private residential construction were unchanged as spending on both single-family and multi-family projects fell. Private residential construction spending edged up 0.1 per cent in May. Spending on renovations increased in June.

Spending on private nonresidential structures fell 1.3 per cent in June, the biggest decline since December 2015, after rising 0.4 per cent in May.

Public construction spending slipped 0.6 per cent in June, dropping for a fourth straight month. Outlays on state and local government construction projects, the largest portion of the public sector segment, fell 0.5 per cent. That was the fourth consecutive monthly decline. Federal government construction spending dropped 2.3 per cent in June.

REUTERS

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