The U.S. manufacturing sector grew in July for the 12th straight month, providing a boost to the slowing economic recovery.
The Institute for Supply Management said Monday that its manufacturing index slipped to 55.5 in July from 56.2 in June. That marked the third straight month of declines. Still, a reading above 50 indicates growth and the index has been above that level for the past year.
In a separate report, the Commerce Department said construction spending edged up 0.1 per cent in June. But all the strength came from government building. Private sector activity in both housing and nonresidential projects fell.
Manufacturing has helped drive the recovery as many businesses began rebuilding their stocks after slashing them during the worst recession in decades. The pace of growth has slowed since peaking in April at 60.4. But it is well above the 32.5 reading in December 2008 - the low point during the recession.
Measures of production and new orders, which signal future business, both grew more slowly last month. But the report noted that more manufacturers said they were willing to hire, a welcome sign despite the deceleration in growth that was expected as the inventory restocking boom faded.
"Yes, the pace eased back a touch, but it was nothing to be worried about," said Joel Naroff, president and chief economist for Naroff Economic Advisors. "Indeed, employment expanded faster which was a surprise. Manufacturers have been adding workers at a decent pace and I expected them to start hiring more slowly."
The manufacturing report is the first major economic indicator for July, and investors reacted favourably. The Dow Jones industrial average rose 187 points in early trading.
Second Half Worries
The government reported last week that total economic growth slowed to a rate of 2.4 per cent in the April-to-June quarter, down from a 3.7 per cent growth rate in the first three months of the year and a 5 per cent growth spurt in the fourth quarter of 2009.
Economists are worried that growth will slow even more in the second half of this year as still high unemployment restrains consumer spending and the impact of the government's massive stimulus programs fade.
The ISM report suggests that manufacturing is going to continue to grow for the rest of the year, and more quickly than the broader economy, said Dan Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, an industry association. Spending by businesses on capital investments is now the primary driver for companies that make goods, he said. That is helping many companies become more efficient and grow, despite weaker consumer spending.
Technology suppliers are booming: chip maker Texas Instruments Inc. said in July that its business had recovered to pre-recession levels in the second quarter, and semiconductor giant Intel Corp. recently posted its biggest quarterly net income in a decade.
Chemical maker DuPont Co. lifted its guidance for 2010 as sales volumes increased and it increased its prices.