Manufacturing continues its slow growth

Manufacturing grew a little slower in August than the previous month but didn't contract as some had feared. The 25th straight month of growth was a hopeful sign that U.S. factories weathered a difficult summer for the economy.

The Institute for Supply Management said yesterday that its manufacturing index slipped to 50.6 last month, down slightly from a reading of 50.9.

Stocks rose after the report showed the industry didn't contract. Economists had forecast the index to come in below 50, the level that separates growth from contraction, for the first time since July 2009 -- one month after the recession ended.

Still, the report suggests manufacturing is weak. Orders contracted, though at a slower pace than the previous month. Production shrank for the first time in 26 months.

"The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customer's confidence and willingness to place orders, at least in the short term," said Bradley Holcomb, the chair of the ISM's survey committee.

A survey of regional manufacturers by the Federal Reserve Bank of Philadelphia showed that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. Surveys by the New York Fed and Richmond Fed also pointed to slowdowns in those areas.

Meanwhile, builders nationwide cut back on spending by the largest amount in six months in July with sharp reductions in spending on government building projects.

The Commerce Department said Thursday that construction spending fell 1.3 percent to a seasonally adjusted annual rate of $789.5 billion.

That is 3.5 percent above an 11-year low hit in March, but it is still only about half the $1.5 trillion that economists view as a healthy level for construction. Economists believe it could take four years before construction activity returns to more normal levels.

The weakness in July reflected a 2.1 percent drop in spending on government building projects, which fell to the slowest pace since late 2006. Spending on residential construction was down 1.4 percent.