Industry group says manufacturing grows in July for 12th straight month, boosts weak recovery

NEW YORK – The manufacturing sector grew in July for the 12th straight month, providing a boost to the slowing economic recovery.

The Institute for Supply Management said Monday that its manufacturing index slipped to 55.5 in July from 56.2 in June. That marked the third straight month of declines. Still, a reading above 50 indicates growth and the index has been above that level for the past year.

In a separate report, the Commerce Department said construction spending edged up 0.1 percent in June. But all the strength came from government building. Private sector activity in both housing and nonresidential projects fell.

Federal Reserve Chairman Ben Bernanke said Monday that the nation faces a long road back to good economic health. Bernanke noted in a speech in South Carolina that the worst of the financial crisis is behind the nation and the economy is growing again.

"But we have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings," the Fed chief said in a speech prepared for delivery in South Carolina.

The government reported last week that total economic growth slowed to a rate of 2.4 percent in the April-to-June quarter, down from a 3.7 percent growth rate in the first three months of the year and a 5 percent growth spurt in the fourth quarter of 2009.

Economists are worried that growth will slow even more in the second half of this year as still high unemployment restrains consumer spending and the impact of the government's massive stimulus programs fades.

Manufacturing helped drive the early stages of the recovery as many businesses began rebuilding their stocks after slashing them during the recession. The pace of growth has slowed since peaking in April at 60.4. But it is well above the 32.5 reading in December 2008 — the low point during the recession.

Measures of production and new orders, which signal future business, both grew more slowly last month. But the report noted that more manufacturers said they were willing to hire, a welcome sign despite the deceleration in growth that was expected as the inventory restocking boom faded.

"Yes, the pace eased back a touch, but it was nothing to be worried about," said Joel Naroff, president and chief economist for Naroff Economic Advisors. "Indeed, employment expanded faster which was a surprise. Manufacturers have been adding workers at a decent pace and I expected them to start hiring more slowly."

The manufacturing report is the first major economic indicator for July and investors reacted favorably. The Dow Jones industrial average rose 175 points in early trading.

The report suggests that manufacturing is going to continue to grow for the rest of the year, and more quickly than the broader economy, said Dan Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, an industry association. Spending by businesses on capital investments is now the primary driver for companies that make goods, he said. That is helping many companies become more efficient and grow, despite weaker consumer spending.

Technology suppliers are booming: chip maker Texas Instruments Inc. said in July that its business had recovered to pre-recession levels in the second quarter, and semiconductor giant Intel Corp. recently posted its biggest quarterly net income in a decade.

Chemical maker DuPont Co. lifted its guidance for 2010 as sales volumes increased and it increased its prices.

While the manufacturing sector keeps growing, the construction industry has struggled since the federal government ended a popular homebuyers tax credit on April 30.

Spending on housing construction fell in June for a second consecutive month, dropping 0.8 percent after an even bigger 1.5 percent decline in May.

Spending on nonresidential building projects fell for a 15th consecutive month, dropping 0.5 percent in June. This sector has been hard hit by the economic downturn, which has triggered rising defaults on commercial real estate projects. That has prompted banks to tighten lending standards and made it harder for builders to get financing for new projects.

The only strength in June came in the government sector. Overall public construction rose 1.5 percent. That reflected a 1.1 percent increase in spending by state and local governments on roads, sewer projects and public buildings, and a 4.6 percent increase in federal government spending on projects.

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AP Economics Writers Martin Crutsinger and Jeannine Aversa contributed in Washington to this report.