U.S. manufacturing grew more slowly in August, a research group reported yesterday, adding to other signs that the economic expansion continued to lose steam in recent weeks.
The Institute for Supply Management's index of manufacturing activity fell to 59 last month, its weakest reading of the year, from 62 in July. The figures are based on a survey of purchasing managers, with a reading above 50 indicating growth and a number below that level reflecting a decline.
The report followed other recent reports that have showed stalling job creation, weak income growth, slowing home sales, falling exports and slipping consumer confidence. Wal-Mart Stores Inc. and Target Corp. are among the companies that have lowered their sales forecasts for August.
"Clearly, the economy is still working its way through a soft spot," said Ken Kim of Stone & McCarthy Research Associates in an analysis for clients.
One bright spot in the economy is construction spending, which rose 0.4 percent in July from the month before to a record-high $997.2 billion annual rate, the Commerce Department reported yesterday. But part of the gain reflected activity that was delayed by wet weather in June, when construction spending was flat, analysts said. And some of the advance was the result of higher prices for building materials.
The latest figures indicate the economy is still growing at a solid pace, although more slowly than at the beginning of the year, analysts said.
The reports reinforce "the theme of a growth pause, not a downturn," said Drew Matus, of Lehman Brothers Global Economics, in a note to clients.
That means the Federal Reserve will probably raise its benchmark overnight interest rate to 1.75 percent from 1.50 percent at its next policymaking meeting, Sept. 21, analysts said. Fed officials are worried that the benchmark rate is so low it may fuel inflationary pressures in the future.
Fed officials sounded an optimistic note after their last meeting, Aug. 10, when they said in a statement that the economy "appears poised to resume a stronger pace of expansion going forward."
However, several analysts said Fed policymakers could decide to leave the rate unchanged at the next meeting if the August employment report, to be released Friday, is weak.
Meanwhile, the nation's corporate leaders remain upbeat, according to a survey released yesterday by the Business Roundtable, an association of chief executives.
"America's CEOs believe that the U.S. economy is fundamentally healthy and see capital spending, sales and employment continuing to grow steadily over the next six months," said Henry A. McKinnell, chairman of Business Roundtable and of Pfizer Inc. "Despite the economy's recent slowdown, CEOs are optimistic about business conditions. While the economy has not yet reached its full potential, the fundamentals are still solid."