Economic performance of the US industrial sector continues to deteriorate
U.S. Industry Surprises with Accelerated Slowdown in July. The purchasing managers' index for the manufacturing sector fell to 46.8 points from 48.5 in June, according to a survey released on Thursday by the Institute for Supply Management (ISM). This is the lowest level since November. The manufacturing sector accounts for about 10 percent of U.S. economic output. Economists polled by Reuters had expected the ISM gauge to rise to 48.8. The growth threshold is 50 points.
The manufacturing sector is facing headwinds from the sluggish global economy and the tight monetary policy of the U.S. Federal Reserve, which has recently opened the door to a potential rate cut. "The purchasing managers' index has weakened for the fourth consecutive month and missed the consensus forecast," explained Helaba analyst Ulrich Wortberg. Moreover, the index is well below the growth threshold: "Hence, concerns about a slowdown in the industry are likely to grow and expectations for a rate cut will persist." CONSTRUCTION SPENDING DROPS Meanwhile, there was more bad news from the U.S. construction sector. Construction spending fell by 0.3 percent in June, the Commerce Department reported. Economists had expected a 0.2 percent increase, following a downward revision to a 0.4 percent decrease in May. The construction sector is also feeling the pinch from the central bank's tight monetary policy, as mortgage rates have risen. The Fed has kept interest rates in a range of 5.25 to 5.50 percent. However, a rate cut is expected in September, which could boost construction activity.
In the wake of the U.S. Federal Reserve's tight monetary policy, the construction sector also saw a decrease, with construction spending falling by 0.3% in June. The sluggish global economy and rising mortgage rates have put pressure on both the manufacturing and construction sectors, causing them to face headwinds.
