Survey: U.S. manufacturing shrinks for third month

U.S. factory activity shrank for the third straight month in August as new orders, production and employment all fell. The Institute for Supply Management, a trade group of purchasing managers, reports this morning that its index of manufacturing activity ticked down to 49.6. That’s down from 49.8 in July and the lowest reading in three years. A reading below 50 indicates contraction. Weak consumer spending and steady declines in business orders for large machinery and other capital goods are slowing factory output. The report follows other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month. And manufacturing in Europe has also stagnated in the face of the region’s financial crisis. Paul Dales, senior U.S. economist at Capital Economics, says continued uncertainty caused by the recession in Europe, the slowdown in Asia and impending tax increases and spending cuts in the United States “is taking its toll on activity.” The manufacturing index typically needs to fall to about 43 to suggest the broader economy is shrinking, according to the ISM.