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

European Economy

In the euro area, manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter.

A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, Markit said yesterday. The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction.

In China, manufacturing slowed further in August, surveys of purchasing managers showed, with one gauge at the lowest level since March 2009. A factory index released yesterday by HSBC Holdings Plc and Markit dropped to 47.6, the lowest in more than three years.

Other reports show U.S. manufacturing, which accounts for about 12 percent of the economy, weakened last month. Factory activity in the New York region contracted in August for the first time in 10 months, and production in the Philadelphia-area shrank for a fourth month, Federal Reserve reports showed.

Business Barometer

The Institute for Supply Management-Chicago Inc.’s business barometer also eased in August, indicating the pace of expansion was moderating and that companies may hold the line on production until sales pick up.

“Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, output or orders” the Fed said last week in its Beige Book business survey, which reflected information collected on or before Aug. 20.

The slowdown at factories comes as 8.3 percent unemployment restrains consumer demand and cooling global growth reduces new businesses orders. Household spending increased at a 1.7 percent annual rate in the second quarter, the smallest advance in a year, Commerce Department data show. Corporate spending on equipment and software rose at a 4.7 percent pace in that period, the weakest since the third quarter of 2009.

Fed Chairman Ben S. Bernanke said Aug. 31 that the central bank considers additional bond purchases an option to spur growth. Stagnation in the labor market is a “grave concern” because it could create lasting economic damage, he said during a speech in Jackson Hole, Wyoming.

Global Economy

The future pace of production also depends on whether global growth continues to cool, damping demand. The euro-area economy shrank from April to June, the third straight quarter without expansion, according to the European Union’s statistics office. China’s growth decelerated last quarter from a year earlier for the six consecutive time.

“We remain cognizant that there is the potential for further deterioration of the world economies,” Rick Cote, president and chief operating officer of watchmaker Movado Group Inc., said during an Aug. 28 earnings call. “Our plans continue to anticipate moderate growth in North America, modest growth in Northern Europe, declines in Southern Europe and solid growth in Asia and South America.”

Bloomberg News

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