Wednesday, Sept. 1, 2004 | 9:05 a.m.
BLOOMBERG NEWS
WASHINGTON -- U.S. manufacturing expanded less broadly in August as fewer companies reported an increase in orders and production.
The Institute for Supply Management's factory index last month declined to 59 from 62 in July. The index has shown expansion, marked by readings higher than 50, since June 2003. Construction spending in July rose for the fifth time in the last six months, the Commerce Department reported separately.
"The manufacturing sector has cooled somewhat, but it's still very warm," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn.
Orders slowed after the U.S. economy expanded in the second quarter at the slowest pace in more than a year. The Conference Board on Tuesday said consumer confidence fell in August for the first time since February. U.S. retailers, including Wal-Mart Stores Inc. and Kohl's Corp., may have posted their smallest sales gains in 17 months during last month, according to the International Council of Shopping Centers.
More companies said they were adding to inventories and a gauge of employment showed growth, a sign manufacturers "have some confidence going forward," according to Norbert Ore, chairman of the supply managers group. While more factories reported paying higher prices for energy and raw materials, it's not "slowing things down," he said.
Economists expected a reading of 60 in the factory index, based on the median of 73 forecasts in a Bloomberg News survey. In January the reading of 63.6 was the highest in two decades. Today's reading is the lowest since 57.1 in August.
July construction spending rose 0.4 percent, led by work on housing, after no change in June, the Commerce Department said.
The Tempe, Ariz.-based, supply managers' group surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture and plastics. Manufacturing accounts for about one-eighth of the economy.
Manufacturing in the dozen nations sharing the euro slowed last month after oil prices rose to a record. An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc dropped to 53.9, the lowest since March, from July's 54.7.
The U.S. supply managers group's new orders index, which accounts for about a third of the total, fell to 61.2 from 64.7 in July. The production index, a gauge of work being performed, declined to 59.5 from 66.1.
The employment index dropped to 55.7 from 57.3. The index of inventories rose to 51.7 from 49.9, indicating inventories are being rebuilt after falling a month earlier.
"We see manufacturing as being strong and fairly consistently strong," said John Ryan, chief executive officer at Mine Safety Appliances, in an interview from Pittsburgh. "When you're in business, you don't get too upset about this little bit up or little bit down."
The pickup still isn't enough to satisfy demand. Orders waiting to be filled at makers of durable goods swelled in July to the highest in three years, the Commerce Department reported last week.
Investment in equipment and software rose at 13.6 percent annualized pace in the second quarter, following an 8 percent rise the previous three months, the government's revised figures on gross domestic product also showed.
"Rising unfilled orders reflect a need to increase shipments, which in turn drives production," said Christopher Low, chief economist at FTN Financial in New York, before the report. The increases suggest "there is still ample demand to drive the economy forward."
Manufacturers added 10,000 workers to their payrolls last month, accounting for a third of the total increase, Labor Department figures show. This month's report, due Friday, is expected to show a gain of 15,000 factory jobs among the expected 150,000 increase in payrolls, according to the median estimate of economists surveyed.
The economy is projected to expand 4.3 percent this year, the most since 1999, according to the median estimate of a separate Bloomberg News survey last month.
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