U.S. Manufacturing Shrinks, Private Hiring Up

Date : 08/01/2012 @ 11:40AM
Source : Dow Jones News
Stock : Citigroup, Inc. (C)
Quote : 71.35  0.2 (0.28%) @ 1:52PM

U.S. Manufacturing Shrinks, Private Hiring Up

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-- ISM US factory report shows sector still contracting in July

-- ADP says 163,000 new private sector jobs added last month, more than expected

-- Weak factory data worldwide put pressure on global central banks

Two reports out Wednesday show two views of July economic activity. The U.S. factory sector contracted last month but private businesses added a moderate number of jobs. The reports come on the same day the Federal Reserve ends its two-day policy meeting.

The U.S. manufacturing sector contracted again in July, as the global slowdown pulled down export orders, according to data by the Institute for Supply Management. The ISM's manufacturing purchasing managers' index improved but only to 49.8 last month from 49.7 in June.

A reading above 50 indicates expanding activity. The June index was the first contractionary reading since July 2009.

Economists surveyed by Dow Jones Newswires had expected the July PMI to improve to 50.4.

Other PMIs released earlier Wednesday show the global manufacturing sector slowed sharply or contracted in July. China's index fell to its lowest since November, Australia's PMI hit a three-year low, and the euro zone's contraction worsened last month.

Earlier Wednesday, payroll giant Automatic Data Processing said private companies added 163,000 new jobs in July. The gain was far above economists' median expectation of 108,000 contained in a survey done by Dow Jones Newswires. The June data were revised to show an advance of 172,000 instead of the 176,000 increase reported earlier.

The latest ADP report showed large businesses with 500 employees or more added 23,000 employees in July, while medium-size businesses added 67,000 workers and small businesses that employ fewer than 50 workers hired 73,000 new workers.

Service-sector jobs increased by 148,000 in July, and factory jobs increased by 6,000.

Although the ADP number beat expectations, Joel Prakken of Macroeconomic Advisers, which compiles the data for ADP, cautioned the number isn't strong enough to bring down the unemployment rate.

He said the U.S. economy needs to create jobs at a monthly pace two or three times larger than the July gain for a sustained length of time to cut the jobless rate significantly.

Mr. Prakken said it could take three to four years for the U.S. to reach full employment.

The data put pressure on central banks to initiate more stimulus programs. The U.S. Federal Reserve is scheduled to end its two-day policy meeting later Wednesday, but Fed watchers don't expect any new programs to be disclosed. The European Central Bank is scheduled to meet Thursday.

Within the U.S. ISM survey, the indexes generally weakened.

Demand is sagging. The new-orders index stood at a still-contractionary 48.0 from 47.8 in June. The exports index fell to 46.5 from 47.5 in June.

The production index was little changed at 51.3 from 51.0 in June. The employment index slowed but stayed positive at 52.0 from 56.6.

Bradley Holcomb, who oversees the ISM survey, said future trends in production will depend on unfilled orders. The backlog index has contracted for four consecutive months, and in July only three industries reported an increase in their backlog.

With global goods producers cutting output, they have also scaled back their demand for commodities. As a result, input prices have weakened. The ISM's prices index improved slightly to 39.5 from 37.0 in June.

Write to Kathleen Madigan at kathleen.madigan@dowjones.com.

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