US factory activity slows; construction spending up solidly

US factory activity hit a more than two-year low in August as manufacturers struggled with a strong dollar, weak global demand and the lingering effects of deep spending cuts in the energy sector. Other data on Tuesday, however, suggested the economy appeared to be on solid footing, with construction spending rising in July to its highest level since 2008.
The Institute for Supply Management (ISM) said its national factory activity index fell to 51.1 last month, the lowest reading since May 2013, from 52.7 in July. A reading above 50 indicates expansion in the manufacturing sector. The decline in the index also likely reflected the recent global equities sell-off, which was triggered by concerns over China's slowing economy. The ISM's new orders subindex fell to 51.7, also the lowest level since May 2013, from 56.5 in July.
The employment index slipped to 51.2 last month from a reading of 52.7 in July. Manufacturing, which accounts for 12 percent of the US economy, has been under pressure from the strength of the dollar, which has gained 16.8 percent against the currencies of the United States' main trading partners since June 2014. A more than 60 percent plunge in crude oil prices since June last year has led to deep spending cuts in the energy sector.
But apart from manufacturing, the economy is thriving. In a separate report, the Commerce Department said construction spending increased 0.7 percent to $1.08 trillion, the highest level since May 2008, after a similar gain in June. Construction spending has increased for eight straight months and was as up 13.7 percent compared to July of last year. The construction spending report rounded off a month of solid data that suggested the economy had retained much of its strength from the second quarter, when it expanded at a 3.7 percent annual pace. July data for consumer spending, industrial production, business spending, housing and employment painted a fairly upbeat picture of the economy. Construction spending in July was buoyed by a 1.3 percent jump in private construction spending to the highest level since April 2008. Spending on private non-residential construction projects surged 1.5 percent to the highest level since October 2008.