ISM: Manufacturing Expansion Slowed in July on Rising Prices

The nation's manufacturing sector expanded in August at a slower clip than in July amid rising commodity prices, a trade group said Friday.

The Institute for Supply Management, based in Tempe, Ariz., said its manufacturing index registered 54.5 in August, just below the 54.7 July reading. Analysts expected the index to be flat.

A reading of 50 or more indicates expansion, while below 50 shows contraction. The August figure represented the 39th consecutive month of growth.

Click here to visit's Economy Center.

"Manufacturing is still the strongest component of the U.S. economy," said Douglas Porter, an economist at BMO Nesbitt Burns, a Toronto investment bank.

Porter said the greatest concern for manufacturers over the next six months should be weakening in the housing sector and consumer spending, though he does not consider either of these risks to be too great. Porter said recent declines in gasoline prices and long-term interest rates should ease the burden on average Americans.

The ISM's prices paid index fell to 73 in August from 78.5 in the previous month, while its new orders index fell to 54.2 in August from 56.1 in July.

The backlog of orders index climbed to 51.5 in August from 50.5 a month earlier — a "warning flag" when it comes to the outlook for consumer spending, according to Porter.

The exports index climbed to 55.7 in August from 51.9 in July, while the imports index fell to 54 from 57.5.

The nine industries that reported growth in August were: electrical equipment, appliances and components; fabricated metal products; miscellaneous manufacturing; chemical products; computer and electronic products; primary metals; food, beverage and tobacco products; furniture and related products; and paper products.

"The major concerns in manufacturing at this point are the continued upward pricing pressure that has existed for the past 13 months, and some industries are experiencing a degree of inventory buildup," said Norbert J. Ore, the institute's chair.

In a separate report, Labor Department data showed hiring picked up in August. Employers added 128,000 jobs, pulling down the unemployment rate to 4.7 percent. The figures were a slightly better than expected.

Stock prices were mixed on Wall Street. The Dow Jones industrials gained 18.97 points to 11,400.12, while the Nasdaq composite index slid 0.65 point to 2,183.10. The broader S&P 500 index was up 1.62 point at 1,305.44.

With the housing market and the overall economy cooling off, the Federal Reserve last month halted a more than two-year long rate raising campaign that was intended to tame inflation. Economists are mixed on what the Fed will do at its next meeting on Sept. 20.

In a further reflection of the housing weakness, the Commerce Department said Friday that construction spending declined in July by the largest amount in nearly five years. Construction activity dropped to a seasonally adjusted annual rate of $1.20 trillion in July, down 1.2 percent from June, the agency said.

Click here to visit's Economy Center.