Global manufacturing weakness hurts US factories

Associated Press Modified: September 4, 2012 at 3:30 pm •  Published: September 4, 2012
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WASHINGTON (AP) — Manufacturing is weakening around the globe, a trend that is weighing on U.S. growth just as the presidential campaign enters its final stretch.

U.S. factory activity shrank for a third straight month in August, according to a survey by the Institute for Supply Management released Tuesday.

Manufacturing has slumped as American businesses have scaled back demand for machinery, equipment and other investments. It's also contracting in just about every major economy overseas, including the 17 countries that use the euro, plus Britain, China, Japan and Brazil. In China, factory activity fell last month to its lowest level in more than three years.

Less factory production in the United States and abroad has sapped a critical source of growth and jobs in the three years since the recession ended. That trend will likely keep growth and hiring tepid through the November elections.

Weakness in manufacturing may also help persuade the Federal Reserve to announce some new action after its meeting next week to try to boost growth.

"The manufacturing recovery is at least temporarily out of steam," Nigel Gault, chief U.S. economist at IHS Global Insight, said.

An index of manufacturing activity fell slightly to 49.6 last month, down from 49.8 in July, the ISM survey said. That's the lowest level in three years. And it's the first time the index has stayed below 50 for three straight months since July 2009, a month after the recession officially ended.

A reading below 50 indicates contraction in the sector. But the index typically must fall to about 43 to indicate that the overall economy is in recession, according to the ISM.

Paul Dales, senior U.S. economist at Capital Economics, said the latest survey suggests the economy is growing at an annual rate between 1.5 percent and 2 percent in the July-September quarter. Growth at or below 2 percent isn't enough to significantly lower the unemployment rate, which was 8.3 percent in July.

The U.S. government will issue the August employment report on Friday.

The economy is the top issue for most voters in this year's election. As Democrats gather in Charlotte this week to re-nominate President Barack Obama, polls show that most Americans regard Republican nominee Mitt Romney as better able to handle the U.S. economy.

In accepting the GOP nomination last week, Romney promised to deliver 12 million new jobs if he's elected, or 250,000 a month during his first term in office.

Economists expect the August employment report to show that employers added 135,000 jobs, while the unemployment rate remained stuck at 8.3 percent.

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