Posted 09/04/2012 05:22 PM ET
The contraction in U.S. manufacturing activity deepened last month, data showed Tuesday, giving the Federal Reserve another reason to provide more monetary stimulus at its meeting next week.
The Institute for Supply Management's factory index slipped to 49.6 in August from 49.8 in July, staying in negative territory for the third month in a row. Analysts expected it to rise to 50.2 and return to an expansionary reading.
Index subcomponents showed production is now shrinking after three years of growth, in line with orders, backlogs and exports, which have dwindled for months. Inventories are swelling, and job growth slowed for the fourth consecutive month.
Consumers continue to support the auto sector, according to sales data out Tuesday. Domestic sales in August vs. a year ago were up 10% at General Motors (GM), 12% at Ford (F) and 14% at Chrysler.
But the ISM report contained worrying signs for autos too. A respondent to the survey said the auto industry is slowing "a bit" in the second half of the year.
"Autos can't decouple from the broader economy," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
Lending to consumers with subprime credit records has helped U.S. auto sales, but they're unlikely to sustain the industry, he added.
New-car loans to credit-challenged customers rose 14% in Q2 from a year before, market researcher Experian said Tuesday.
At 25.4% of all new-car loans, such borrowers make up a bigger share than they did in the pre-financial crash periods of Q2 2007 (25%) and Q2 2008 (24.5%).
The ISM data came a day after a eurozone manufacturing index also signaled sustained contraction, though at a slower pace than the prior month.
Chinese factories are weakening too. A government gauge turned negative in August for the first time since November, and a private-sector index hit its lowest level in nearly 3-1/2 years.
Bleaker manufacturing reports could help spur the Fed next week to enact more stimulus, such as a third round of asset purchases, or quantitative easing.
Fed Chairman Ben Bernanke made a strong case last week for more QE, but noted the limits to what it can achieve. Porcelli expects policymakers to OK more QE at their Sept. 12-13 meeting, though he sees few benefits.
"They don't want to be seen as sitting on the sidelines," he said.
Bernanke last week listed housing as an obstacle to continued economic growth, and construction spending data on Tuesday offered a mixed picture.
Overall outlays fell 0.9% in July vs. June after rising for three months. Residential and nonresidential spending both fell.
But a steep drop in home improvement more than offset increases in single-family and multifamily housing construction.
The Institute for Supply Management's factory index slipped to 49.6 in August from 49.8 in July, staying in negative territory for the third month in a row. Analysts expected it to rise to 50.2 and return to an expansionary reading.
Index subcomponents showed production is now shrinking after three years of growth, in line with orders, backlogs and exports, which have dwindled for months. Inventories are swelling, and job growth slowed for the fourth consecutive month.
Consumers continue to support the auto sector, according to sales data out Tuesday. Domestic sales in August vs. a year ago were up 10% at General Motors (GM), 12% at Ford (F) and 14% at Chrysler.
But the ISM report contained worrying signs for autos too. A respondent to the survey said the auto industry is slowing "a bit" in the second half of the year.
"Autos can't decouple from the broader economy," said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
Lending to consumers with subprime credit records has helped U.S. auto sales, but they're unlikely to sustain the industry, he added.
New-car loans to credit-challenged customers rose 14% in Q2 from a year before, market researcher Experian said Tuesday.
At 25.4% of all new-car loans, such borrowers make up a bigger share than they did in the pre-financial crash periods of Q2 2007 (25%) and Q2 2008 (24.5%).
The ISM data came a day after a eurozone manufacturing index also signaled sustained contraction, though at a slower pace than the prior month.
Chinese factories are weakening too. A government gauge turned negative in August for the first time since November, and a private-sector index hit its lowest level in nearly 3-1/2 years.
Bleaker manufacturing reports could help spur the Fed next week to enact more stimulus, such as a third round of asset purchases, or quantitative easing.
Fed Chairman Ben Bernanke made a strong case last week for more QE, but noted the limits to what it can achieve. Porcelli expects policymakers to OK more QE at their Sept. 12-13 meeting, though he sees few benefits.
"They don't want to be seen as sitting on the sidelines," he said.
Bernanke last week listed housing as an obstacle to continued economic growth, and construction spending data on Tuesday offered a mixed picture.
Overall outlays fell 0.9% in July vs. June after rising for three months. Residential and nonresidential spending both fell.
But a steep drop in home improvement more than offset increases in single-family and multifamily housing construction.
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