Manufacturing has been a key driver of the recovery. Above, Francisco Maya… (Bob Chamberlin / Los Angeles…)
WASHINGTON -- Manufacturing, once the bright star in the economic recovery, has lost its luster.
For the second straight month, U.S. factory activity shrank in July as new export orders fell further, the Institute for Supply Management reported Wednesday.
The ISM index of 49.8 in July was similar to the 49.7 reading in June, just a notch below the threshold of 50 that divides expansion and contraction.
It was the first time since the summer of 2009 that the index fell below 50 for two consecutive months, proving to be a big disappointment to analysts, many of whom were expecting a rebound in July.
"After an extremely strong start to 2012, the manufacturing sector has braked to nearly a complete stop this summer," said Daniel Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation, a trade group.
The big culprit is the recession in the Eurozone and slowing growth in China and other developing economies, as well as concerns about the uncertain fiscal outlook in the U.S.
Purchasing managers told the ISM that new orders shrank in July, and the institute's employment index, while remaining in expansion territory, dropped sharply to 52 last month from 56.6 in June. That suggests a continuation of weak factory job growth, if not a decline.
Since January 2010, the manufacturing sector has added more than 500,000 jobs, providing a huge lift to the economy and spawning growth in service employment as well. But after gaining an average of 41,000 new jobs a month in this year's first quarter, factory payroll growth has fallen to just 10,000 a month in the second quarter.
And the near-term prospects for improvement don't look good. The ISM report showed 13 manufacturing industries reported lower orders in July, with only three showing gains and one unchanged. That's the worst since the recession, said analysts at Credit Suisse.
"The U.S. economy is stuck in neutral, with more job creators worried about the future," said Chad Moutray, chief economist at the National Assn. of Manufacturers. "We continue to see more and more evidence of the slowdown among businesses and consumers. Policymakers need to act as soon as possible to address the fiscal situation to ease economic anxieties to jump start growth."
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