US factory activity at 2 ½ year low, points to slowing economy

WASHINGTON: US manufacturing activity slowed to a 2 ½ year low in April amid a sharp drop in new orders while construction spending unexpectedly fell in March, suggesting economic growth was moderating after surging in the first quarter.
One of the reports from the Institute for Supply Management (ISM) on Wednesday showed businesses increasingly anxious that President Donald Trump’s threats to close the US-Mexico boarder would further disrupt the supply chain. Washington’s trade war with China has created bottlenecks at factories.
The Federal Reserve kept US interest rates unchanged on Wednesday, noting solid economic growth in the first quarter, and also holding out hope that inflation will rise toward the US central bank’s 2 per cent target.
“The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The ISM said its index of national factory activity fell to 52.8 in April, the lowest reading since October 2016, from 55.3 in March. A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 12 per cent of the US economy.
Economists polled by Reuters had forecast the ISM index dipping to 55.0 in April. The slowdown in manufacturing partly reflects sluggish global economies and continued uncertainty over the trade talks between the United States and China. A stockpile of unsold goods is also seen slowing manufacturing.
The ISM said 13 industries, including machinery, computer and electronic products, furniture, and electrical equipment, appliances and components reported growth last month. Apparel, transportation equipment and three other industries reported a contraction.
Manufacturers in the electrical equipment, appliances and components industry said “there is growing concern about supply chain product flow through the southern US border.” Those worries were also echoed by their counterparts in the computer and electronic products industry who said “Mexico-US border crossing delays are slowing supplier deliveries.”
The ISM’s new orders sub-index dropped 5.7 points to a reading of 51.7 last month. More industries reported paying less for raw materials, which suggest inflation will probably remain muted for a while. A measure of export orders also fell and factories reported a decline in hiring, with a measure of manufacturing employment falling to 52.4 from 57.5 in March.
That suggests manufacturing payrolls remained weak in April after they dropped in March for the first time since July 2017. Weak manufacturing employment in April also suggested a step-down in overall job growth last month. — Reuters