Economy Manufacturing below July 2009 level

By Christopher S. Rugaber AP Economics Writer WASHINGTON (AP) -- U.S. manufacturing shrank in June for the first time in nearly two years, a troubling sign that the economy is faltering. The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of manufacturing activity fell to 49.7. That's down from 53.5 in May and the lowest reading since July 2009, one month after the recession officially ended. Readings below 50 indicate contraction. Stocks, which had largely been flat when the market opened, fell immediately after the report was released at 10 a.m.. The Dow Jones industrial average dropped 37 points. A measure of new manufacturing orders fell below 50 for the first since April 2009. And a gauge of production also fell to its lowest level in more than two years. U.S. factories are also reporting much less overseas demand, likely because Europe's financial crisis has lowered demand for U.S. exports. A measure of exports dropped to 47.5, its lowest level since April 2009. A gauge of employment edged down but remained at a healthy level of 56.6. That suggests factories may still be adding jobs. Manufacturers have reported job gains for eight straight months. The sharp drop in factory activity overshadowed a positive report on U.S. construction spending, which offered more evidence of a slow recovery in the housing market. Factories have been a key source of jobs and growth since the recession ended almost three years ago. But the sector has shown signs of weakness in recent months. There have been a few good signs recently. U.S. factories received more orders for long-lasting manufactured goods in May, the government said last week, while also noting that a key measure of business investment plans rose. And home sales are up from last year, with prices rising in most cities and homebuilders planning to break ground on more projects in the next 12 months. That should raise demand for manufactured goods such as appliances, building materials and furniture. Still, the Federal Reserve has cut its forecast for the year. It now expects growth of just 1.9 percent to 2.4 percent for 2012. That's half a percentage point lower than the range it estimated in April. The Fed also says unemployment won't fall much further this year than it has. Published: Tue, Jul 3, 2012