Manufacturing in U.S. contracted for a third straight month

Manufacturing in the U.S. contracted for a third month in August, the longest slide since the recession ended and a sign the expansion is at risk of losing a source of strength.

The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today. Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction.

The possibility that taxes will rise and government outlays will shrink if U.S. lawmakers don’t act by January may shake confidence and cause consumers and businesses to curb spending. The European debt crisis represents another stumbling block that threatens to limit orders to American factories.

“Manufacturing has largely stalled,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “The consumer picked up a bit in August, and that should help the manufacturing environment stabilize, but we don’t really look for a robust acceleration anytime soon.”

Stocks fell following a two-week decline in the Standard & Poor’s 500 Index, as the report fueled concern the recovery is stumbling. The S&P 500 dropped 0.5 percent to 1,400.01 at 10:16 a.m. in New York. The yield on the benchmark 10-year Treasury note was little changed at 1.55 percent.

Estimates for the index from the 81 economists surveyed ranged from 48.7 to 51.5. A reading above 42.5 generally indicates an expansion in the overall economy, the ISM has said. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Factory Production

The group’s production index decreased to 47.2, the weakest since May 2009, from 51.3 in July. The new orders measure fell to 47.1, the lowest since April 2009, from 48, and the gauge of export demand rose to 47 from 46.5.

The employment index fell to 51.6, the lowest since November 2009, from 52 the prior month.

The index of prices paid climbed to 54 from 39.5. A measure of supplier deliveries increased to 49.3 from 48.7.

The measure of orders waiting to be filled fell to 42.5 from 43. The inventory index rose to 53 from 49, while a gauge of customer stockpiles was fell to 49 from 49.5.

The Markit Economics final index of manufacturing in the U.S. was little changed at 51.5 in August after 51.4 a month earlier, the London-based group said today. The final figure compared with an initial August reading of 51.9.

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