The economy appears to have lost more steam, two reports showed Tuesday, with manufacturing activity shrinking in September for the first time in eight months and construction spending declining in August.
The data was released a day after another report showed that consumer spending, the primary driver of economic growth, slowed in August.
“The underlying business activity is very disappointing,” said Sherry Cooper, global economic strategist for Harris Bank of Chicago.
The Institute for Supply Management said its index of business activity declined to 49.5 in September from 50.5 in August. Analysts had forecast a reading of 51.0.
An index above 50 signifies growth in manufacturing, while a figure below that shows contraction. The index had not been below 50 since January.
“Stagnant and sluggish are apt descriptions for manufacturing at this time,” said Norbert Ore, who oversees the monthly survey for the Tempe, Ariz.-based institute.
The employment index portion of the report fell to 44.9 from 45.8 in August. That could spell bad news for the September unemployment report, due out Friday. Economists are forecasting that the unemployment rate rose to 5.9 percent from 5.7 percent.
“It points to a drop in manufacturing jobs … and probably a small drop in overall jobs,” said Ethan Harris, co-chief economist at Lehman Brothers.
Economists said the relative strength in manufacturing in the first half of the year can be attributed to a surge in inventory replenishment by retailers who had allowed shelves to go bare during the recession.
“The key issue is whether this was more of a soft patch or the first phase of a more prolonged erosion–an issue that cannot be sorted out until we have at least one more month’s worth of data,” said Anthony Karydakis, senior economist at Banc One Capital Markets in Chicago.
Low interest rates also have helped to spur consumer spending on everything from cars to homes, but economists worry that Americans may begin cutting back.
The Commerce Department reported that construction spending dropped by 0.4 percent in August, to an annual rate of $829.8 billion. The decline was in line with analysts’ expectations. The fall was led by cutbacks in private builders’ projects, including offices, industrial complexes and hotels.
