Manufacturing in U.S. Maintains Weakest Pace Since 2013, Construction Down

 Manufacturing in April held at the weakest pace in almost two years, prompting factories to pull back on hiring as they await stronger demand in the U.S. and abroad.

The Institute for Supply Management’s index was unchanged at 51.5, the lowest since May 2013, a report from the Tempe, Arizona-based group showed Friday. Readings above 50 signal expansion, and the April figure was less than the median projection of 52 in a Bloomberg survey of economists.

The lack of improvement reflects the lingering effects of a stronger dollar and low oil prices on capital spending and exports that caused the economy to nearly stall in the first quarter. While the ISM’s report showed factory employment was the weakest since 2009, readings on orders and production advanced as goods began to move following labor-related delays at West Coast ports.


“The constraints are expected to fade away gradually,” said Gregory Daco, lead U.S. economist at Oxford Economics USA in New York, who correctly projected the ISM reading. “Manufacturing will continue to make modest gains, constrained by international headwinds. The economy will have a partial bounceback this quarter and then more fully bounce back in the second half of the year.”

Estimates of 85 economists in the Bloomberg survey ranged from 50.3 to 54. Readings greater than 50 indicate growth.

Industry Breakdown

Fifteen of 18 U.S. manufacturing industries expanded in March, led by producers of plastics, wood products and minerals. Makers of apparel and computers and electronics were the two industries that said business contracted.

Another report Friday, from Markit Economics, showed U.S. factories expanded in April at the slowest pace in three months.

Stocks rose, with the Standard & Poor’s 500 Index paring a weekly loss, as Gilead Sciences Inc. led a rebound in biotechnology shares. The S&P 500 advanced 0.5 percent to 2,095.95 at 10:41 a.m. in New York.

Manufacturing around the world remains tepid. Growth at U.K. factories dropped to a seven-month low in April, according to a Markit Economics index. China’s official Purchasing Managers’ Index was little changed at 50.1 last month, the China Federation of Logistics and Purchasing in Beijing said April 30.

Factory Employment

The ISM’s measure of U.S. factory employment decreased to 48.3, the weakest since September 2009, from the prior month’s 50 reading.

The reading on factory jobs “was taking a pause in one respect,” Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee, said on a conference call with reporters. “It’s more of tapping the brakes to assess where is this manufacturing economy and overall economy going.” Holcomb said that he’s optimistic hiring will rebound as production, exports and orders pick up.

The group’s new orders gauge climbed to a four-month high of 53.5 from 51.8, and a measure of production rose to 56 from 53.8. The index for orders waiting to be filled held at 49.5.

The measure of export demand rose to 51.5 last month from 47.5 in March. The report also showed the index of prices paid increased to 40.5 from 39.

Investment, Exports

The advance in the dollar since mid-2014 and the global drop in oil prices have already taken a toll on investment and export demand, which has fallen for four consecutive months through February.

A wider trade deficit subtracted 1.25 percentage points from first-quarter economic growth. Gross domestic product, the volume of all goods and services produced, rose at a 0.2 percent annualized rate, the weakest in a year, after advancing 2.2 percent in the prior three months, according to Commerce Department data released Wednesday.

Corporate fixed investment decreased at a 2.5 percent annualized pace, the worst performance since the end of 2009, the GDP figures also showed. Investment in nonresidential structures, including office buildings and factories, dropped by the most in four years, reflecting weakness in petroleum exploration.

Halliburton Co., the world’s second-biggest provider of oilfield services, said it expects to reduce capital spending by 15 percent this year and accelerated the pace of job cuts ahead of its takeover of Baker Hughes Inc.

That’s one reason Federal Reserve officials signaled this week after a two-day meeting that they’re in no rush to begin raising interest rates.

Consumer Spending

At the same time, there are signs household demand is improving. Consumer spending climbed in March by the most since November, helping to end a weak first quarter on a more hopeful note. A strong labor market and some improvement in wages may help usher in a U.S. rebound.

Economic growth may pick up to a 3.1 percent pace in the second quarter, according to the median forecast in a Bloomberg survey conducted April 3 to April 8. For all of 2015, the economy is projected to expand 2.9 percent on average.

Automobile sales are holding up. Honeywell International Inc., a Morris Township, New Jersey-based manufacturer, sees greater demand for its turbocharger technology as vehicle purchases rise.

“Lower prices at the pump, improvements in employment, and overall positive consumer sentiment have driven greater demand for autos,” Thomas Szlosek, chief financial officer, said on an April 17 earnings call.

U.S. construction spending hits six-month low in March

U.S. construction spending fell in March to a six-month low as outlays on private residential construction spending declined sharply, which could add to concerns about the economy’s ability to rebound strongly from the first-quarter’s soft patch.

Construction spending slipped 0.6 percent to an annual rate of $966.6 billion, the lowest level since September, the Commerce Department said on Friday.

February’s outlays were revised to show them unchanged instead of the previously reported 0.1 percent dip. Economists polled by Reuters had expected construction spending to rise 0.5 percent in March.

While there are signs the economy is regaining some speed after almost stalling in the first quarter, data on construction and manufacturing suggest a lack of strong momentum in activity.

The economy was slammed by bad weather, a strong dollar, a now-resolved labor dispute at the West Coast ports, as well as lower oil prices, which have cut domestic energy production.

In March, construction spending was weighed down by a 1.6 percent decline in private residential construction spending, the biggest decline since June. Outlays for single-family construction fell 1.8 percent and multi-family home building tumbled 2.1 percent.

Spending on private non-residential construction projects rose 1.0 percent in March.

Public construction outlays were weak, with spending on federal government projects tumbling 4.9 percent. State and local government outlays – the largest portion of the public sector segment – fell 1.2 percent to a one-year low.

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