ISM: Manufacturing Growth Sluggish In July

NEW YORK (AP) -- U.S. manufacturing grew for a 12th straight month in July, providing a boost to the slowing economic recovery.

And many manufacturers said they are willing to hire, a sign that the industry could help ease the nation's high unemployment rate in the months ahead.

The latest report from the Institute for Supply Management did note Monday that manufacturing growth has cooled in the past three months. But much of that was expected. Many businesses are no longer building up their stocks after slashing them during the worst recession in decades.

Wall Street reacted favorably to the first major economic indicator for July. The Dow Jones industrial average surged after its release and was up more than 180 points in midday trading.

"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 strength in manufacturing has helped counter weaknesses in the broader economy. Unemployment has been near double digits all year and economists expect it to stay that way through the rest of the year. Businesses are adding jobs, but not enough to bring the unemployment rate down. As a result, consumers are holding back on their spending.

The housing market has struggled since government tax credits expired in April, a point confirmed Monday in a separate report from the Commerce Department. Construction spending edged up slightly in June. Still, all the strength came from government building. Private sector activity in both housing and nonresidential projects fell.

All of those factors are weighing on the recovery. 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.

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," Bernanke said in a speech to an annual meeting of Southern lawmakers in Charleston, S.C.

Manufacturing is also losing some strength. The ISM manufacturing index slipped to 55.5 in July from 56.2 in June -- the third straight month that growth has slowed. Still, a reading above 50 indicates expansion and the index has been above that level for the past year.

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 ebbed 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.

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.

AP Economics Writer Jeannine Aversa contributed in Washington to this report.