WASHINGTON (AP) — U.S. manufacturing activity likely stopped shrinking in July, a modest improvement from June. Still, consumers and businesses remain cautious and are spending less on factory goods, which likely kept manufacturing from gaining much strength.
Economists forecast that the Institute for Supply Management's manufacturing index rose to 50 in July, according to a survey by FactSet. A reading below 50 indicates contraction, while higher signals growth. An exact reading of 50 suggests manufacturing is neither growing nor shrinking.
Even no growth would be an improvement from June, when the index tumbled to 49.7. That marked the first time in three years that manufacturing shrank.
The private trade group of purchasing managers will release the July report at 10 a.m. Eastern on Wednesday.
The index fell sharply in June, largely because of a plunge in new orders, which fell by the most in more than 30 years. Economists expect that measure will bounce back in July. Measures of production and exports also fell in June.
Other recent reports on manufacturing have been mixed. The Federal Reserve said earlier this month that factory output rose in June as the production of cars, machines and business equipment rose. That followed a drop in May. Overall, manufacturing output rose at only a 1.4 percent annual rate in the second quarter, after a jump of 9.8 percent in the first three months of the year.
A survey by the Federal Reserve Bank of Philadelphia found that manufacturing in that region contracted for the third straight month in July. But a similar survey by the New York Fed showed that regional manufacturing expanded.
Americans' incomes rose in June, according to a Commerce Department report Tuesday. But consumers were reluctant to spend and saved the extra income instead. That boosted the savings rate to 4.4 percent, its highest point in a year.
Overall, consumer spending was flat in June. But Americans spent a bit more on services, while cutting back on their purchases of cars and other long-lasting goods. They also bought fewer non-durable goods, such as clothing and food.
Weak consumer spending was a big reason U.S. economic growth slowed in the April-June quarter to a 1.5 percent annual pace, down from 2 percent in the first quarter.
Businesses are also more cautious. Orders for long-lasting manufactured goods, excluding the volatile aircraft category, fell 1.1 percent in June. That was the third drop in four months.
That caution is also showing up in hiring. Employers have added an average of only 75,000 jobs in the past three months. That's down from 226,000 in the first quarter. The Labor Department will issue July's jobs report Friday, and economists expect it will show that hiring improved slightly 100,000. The unemployment rate will probably remain stuck at 8.2 percent.