You are here

US factory activity, construction spending unexpectedly fall

[WASHINGTON] US factory activity contracted further in November amid a slump in new orders while construction spending unexpectedly fell, offering cautionary notes on an economy that had recently shown signs of growing at a moderate pace.

The reports on Monday came on the heels of upbeat October data on the goods trade deficit, housing and manufacturing that led economists to boost their gross domestic product estimates for the fourth quarter.

The Institute for Supply Management (ISM) said its index of national factory activity dropped 0.2 point to a reading of 48.1 last month. A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11 per cent of the US economy.

The ISM index needs to break below the 42.9 level to signal a recession in the broader economy. Economists polled by Reuters had forecast the index rising to 49.2 in November from 48.3 in the prior month.

sentifi.com

Market voices on:

Though the ISM said business sentiment had improved, likely as the United States and China inch towards a partial trade deal, November's reading marked the fourth straight month that the index remained below the 50 threshold.

Continued contraction in manufacturing could put the Federal Reserve in a difficult policy position. The US central bank in October cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.

Economists say without a complete trade deal, manufacturing is unlikely to rebound much and the sector could remain under pressure, with President Donald Trump on Monday restoring tariffs on steel and aluminum imports from Brazil and Argentina.

Manufacturing is also facing challenges from a domestic inventory bloat, slowing profit growth and weak overseas demand.

The ISM's forward-looking new orders sub-index fell to a reading of 47.2 last month from 49.1 in October. A measure of export orders dropped 2.5 points to a reading of 47.9. The survey's factory employment index fell 1.1 points to a reading of 46.6 last month.

In a separate report on Monday, the Commerce Department said construction spending dropped 0.8 per cent as investment in private projects tumbled to its lowest level in three years. Data for September was revised to show construction outlays declining 0.3 per cent instead of rising 0.5 per cent as previously reported.

Economists had forecast construction spending gaining 0.4 per cent in October. Construction spending increased 1.1 per cent on a year-on-year basis in October.

REUTERS