The US Manufacturing sector continued to decline in July, defying economists' expectations for slight expansion. According to the Institute for Supply Management's monthly factory index, released Wednesday, activity for the month came in at a reading of 49.8, just ahead of June's reading of 49.7, but below the reading of 50.2 projected by economists that took part in a recent Bloomberg survey, on average. The ISM notes that any reading below 50 indicates contraction in the sector, while readings above 50 denote expansion.
Of particular concern in the ISM's report was a reading indicating that factory orders declined for the second month in a row as the ongoing European debt crisis and planned spending cuts and tax hikes in the US are prompting caution from businesses worldwide. Following the report, the Federal Reserve acknowledged that the recovery is losing steam, and hinted at further stimulus measures, but stocks fell as investors had been hoping for an announcement of QE3, a third round of asset purchases aimed at keeping interest rates down.
Since the recession officially ended in June 2009, the manufacturing sector has been one of the few bright spots in the US economy, expanding at a faster pace than the overall economy. But that growth has started to diminish in recent months, and the sector has now contracted for two straight months, sparking even more serious concerns about the strength of the recovery. Ironically, the slowdown in manufacturing comes even as the housing sector, which has been the slowest part of the economy to recover, has shown signs of life in recent months.