U.S. manufacturing probably stagnated as spending cooled

MANUFACTURING in the U.S. probably stagnated in July after contracting for the first time in three years, economists said before a report today.
Posted 8/1/12

WASHINGTON - Manufacturing in the U.S. probably stagnated in July after contracting for the first time in three years, economists said before a report today.

The Institute for Supply Management’s factory index rose to 50.2 last month from 49.7 in June, according to the median estimate of 83 economists surveyed by Bloomberg News. Fifty marks the dividing line between expansion and contraction. Construction spending probably climbed in June for a third month, other data may show.

Factories may temper production as companies curb spending on concerns lawmakers will fail to act before automatic government spending cuts and higher taxes go into effect next year. Cutbacks in household purchases, Europe’s debt crisis and slower global growth threaten to further restrain an industry that’s been a source of strength for the economy.

“You can point to general uncertainty in the economy that’s caused households to increase their savings and caused businesses to be more cautious,” said Ellen Zentner, senior economist at Nomura Securities International Inc. in New York. “Businesses are reporting that their clients are waiting until the last minute to place orders.”

While the economy has slowed for two straight quarters, Federal Reserve policy makers concluding a two-day meeting today will probably forgo announcing a third round of large-scale asset purchases, waiting instead until September, according to median estimates of economists in a Bloomberg survey.

Fed forecast

Eighty-eight percent said the Federal Open Market Committee will refrain from starting new purchases, according to the July 25-27 survey of 58 economists. Forty-eight percent said policy makers will announce the buying at its Sept. 12-13 meeting.

The Fed may take further action if the job market fails to make “sustained progress” in bringing down an unemployment rate stuck above 8 percent for 41 consecutive months, Chairman Ben S. Bernanke told Congress last month.

The Tempe, Arizona-based ISM’s factory figures are due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 48.5 to 52.

At the same time, the Commerce Department in Washington may report a 0.4 percent increase in June construction spending after a 0.9 percent gain the prior month, according to the Bloomberg survey median.

U.K. manufacturing shrank last month by the most in more than three years, another report today showed. An index of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 45.4 from a revised 48.4 in June, London-based Markit said.

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