Manufacturing weakens in line with China slowdown

By Paul Wiseman
AP Economics Writer

WASHINGTON (AP) — Factory activity in the world’s two biggest economies — the United States and China — slowed in January, a discouraging trend for the global economy.

U.S. factory activity shrank in January for a fourth straight month as a strong dollar and weak demand overseas pinched American manufacturers, the Institute for Supply Management said Monday.

The ISM’s manufacturing index ticked up to 48.2 from a revised 48 in December, but any reading below 50 signals a contraction. The index has remained below 50 since September.

U.S. factory exports and employment fell in January, though new orders and production grew for the first time since October.

“Yet another sub-50 ISM print remains consistent with our view that there is little to suggest a turnaround in (manufacturing) in the near future,” Derek Lindsey, economist at BNP Paribas, wrote in a research note.

In China, an official survey found that manufacturing fell to its lowest level in more than three years. The index, based on a survey of Chinese factory purchasing managers, slipped to 49.4 from 49.7 in December. The January reading was the lowest since August 2012.

Prospects for the global economy have been dimmed by China’s sharp deceleration, which has, in turn, hurt emerging economies that have supplied China with materials. Low oil prices have also caused energy companies to cut back investment. And the strong dollar has made U.S. goods more expensive overseas.

A measure of exports plunged four points to 47, the lowest reading since September. Companies in the transportation equipment industry, which includes autos and airplanes, machinery, and computer products reported lower exports.

Bradley Holcomb, chairman of the ISM’s survey committee, said U.S. manufacturing would likely remain weak in coming months, slowed by the strong dollar and excess stockpiles of raw materials held by many companies. That means they will likely order fewer goods as they reduce those stockpiles.

“For now, it’s more of the same,” Holcomb said. “New orders are a bright spot here, and we’ll hope that continues.”

A measure of new orders rose to 51.5, just barely in expansion territory for the first time in three months. Yet similar gains will be needed in the months ahead to point to a significant turnaround.

Last Friday, the Commerce Department said the American economy grew at a lackluster 0.7 percent annual rate from October through December. Exports of goods dropped a 5.4 percent annual rate.

Investment in equipment fell at an annual rate of 2.5 percent. American factories added just 30,000 jobs in 2015, the fewest since they cut nearly 1.4 million jobs in the recession year 2009.

The ISM, a trade group of purchasing managers, surveys about 200 U.S. companies each month.