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Manufacturing sector holding its own amid turmoil

The manufacturing sector's pace slid a bit in August, but continued to grow despite stock market turmoil, a downgrade of U.S. debt and a display of dysfunction in Washington.
/ Source: staff and news service reports

The manufacturing sector's pace slowed a bit in August, but continued to grow despite stock market turmoil after a downgrade of U.S. debt.

The Institute for Supply Management's index of manufacturing activity slid to 50.6 in August, down slightly from 50.9 in July. Any reading below 50 signals contraction.

Economists had expected the index to show the sector contracted for the first time since July 2009, a month after the recession ended. Instead, it expanded for the 25th straight month, showing that while the U.S. economy is limping along, it's not ready to dive into a double-dip recession just yet.

Still, the report suggests manufacturing is weak. Orders contracted, though at a slower pace than the previous month. Production shrank for the first time in 26 months.

"The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customer's confidence and willingness to place orders, at least in the short term," said Bradley Holcomb, the chair of the ISM's survey committee.

The report has added importance this month. It follows a major sell-off on Wall Street, Standard & Poor's downgrade of long-term U.S. debt, and batch of grim economic data.

The economy expanded at an annual rate of just 0.7 percent in the first half of the year, the weakest six months of growth since the recession officially ended.

Manufacturing has grown in all but one month since the recession ended. But it slowed this spring after the Japan crisis disrupted supply chains, which affected U.S. factories.

A survey of regional manufacturers by the Federal Reserve Bank of Philadelphia showed that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. Surveys by the New York Fed and Richmond Fed also pointed to slowdowns in those areas.

Stocks fell sharply in late July and early August. They have recovered some of their losses. The Dow Jones industrial average is about 9 percent below its July 21 level.

Consumer confidence tumbled in August to its lowest level since April 2009, the Conference Board said Tuesday. That raised concerns that consumer spending, which accounts for 70 percent of the economy, might follow suit. But economists say consumers don't always follow through on their gloomy outlooks by cutting spending.

Other data show the economy if off to a better start in the July-September quarter. Employers added 117,000 net jobs in July, about double the pace of the previous two months. Consumer spending rose that month by the most in five months, partly because Americans bought more cars and spent more to cool their homes. And businesses ordered more goods from factories, particularly autos and airplanes, the Commerce Department said Wednesday