U.S. manufacturing contracts

U.S. manufacturing contracts; construction spending surges

U.S. manufacturing contracted in November for the first time in 36 months as the sector buckled under the weight of a strong dollar and deep spending cuts in the energy sector.

But the economy remains on firmer ground, with other data on Tuesday showing a sturdy increase in construction spending in October as outlays rose across the board.

The Institute for Supply Management said its national factory index fell to 48.6 last month, the first contractionary reading since November 2012, from 50.1 in October. While a reading below 50 indicates a contraction in manufacturing, the index remains above 43.1, which would signal a recession.

Manufacturing, which accounts for 12 percent of the economy, has been hammered by dollar strength and the spending cuts by energy firms. The dollar has gained 18.1 percent against the currencies of the United States’ main trading partners since June 2014.

Manufacturing has also been undercut by business efforts to reduce an excessive inventory build, which will put pressure on new orders. Recent data on business capital spending plans and factory output had offered hope that the worst of the sector’s woes were over.

The new orders index fell 4 percentage points to 48.9 last month. New export orders were unchanged. Ten out of 18 manufacturing industries reported contraction in November, with lower new orders, production and raw materials inventories accounting for the overall softness in November.

The dollar fell to a session low against the euro, while prices for U.S. government debt rose. U.S. stocks trimmed gains.

In second report, the Commerce Department said construction spending increased 1.0 percent to a seasonally adjusted $1.11 trillion rate, the highest level since December 2007, after an unrevised 0.6 percent gain in September.

Construction spending has risen every month this year and is likely to support the economy in the final three months of the year as it deals with the strong dollar and energy cuts. Frugal consumers are also holding back growth.

Construction outlays were up 13 percent compared to October of last year. Construction spending in October was buoyed by a 0.8 percent rise in private spending, which touched its highest level since January 2008. Outlays on private residential construction gained 1.0 percent and hit their highest level since December 2007, reflecting increases in home building and renovations.

Investment in private non-residential construction projects rose 0.6 percent to a near seven-year high, with spending on manufacturing plants rising a solid 3 percent.

Public construction outlays jumped 1.4 percent to a five-year high as a surge in federal government spending offset a dip in investment by state and local government.

Spending on state and local government construction projects, which is the largest portion of the public sector segment, slipped 0.1 percent. Federal government outlays surged 19.2 percent to the highest level since May 2012.