U.S. Factories Probably Stagnated for Second Month in August

By Bob Willis
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Sept. 2 (Bloomberg) -- Manufacturing in the U.S. stagnated in August for a second month as weakening domestic demand countered rising exports, economists said before a report today.

The Institute for Supply Management's factory index was unchanged at 50.0, according to the median estimate in a Bloomberg survey before today's report from the Tempe, Arizona- based group. The ISM gauge has hovered near 50, the dividing line between expansion and contraction, for the past year.

Manufacturers are paring output and investments as tumbling home prices and high gasoline and other commodity costs squeeze demand. Surging exports are keeping factories from stumbling as the broader economy slows.

``Exports continue to save the day as strong demand from abroad is putting a floor under manufacturing,'' said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. ``Final demand will remain weak as the fiscal stimulus boost fades and tight credit conditions hurt investment.''

Economists' forecasts ranged from 48.5 to 52. The ISM will release the report at 10 a.m. New York time.

A separate report from the Commerce Department at the same time may show construction spending fell 0.4 percent in July for a second month, according to economists surveyed by Bloomberg.

The economy will grow at an average 0.7 percent pace in the second half of the year, economists surveyed by Bloomberg News forecast in the first week of August. Last week, the government reported the economy grew at a better-than-forecast 3.3 percent annual rate in the second quarter, following 0.9 percent in the first three months of the year.

Shrinking Trade Deficit

The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The smaller gap added 3.1 percentage points to growth, the most since 1980. That is likely to diminish as overseas economies slow and the dollar strengthens.

Manufacturers have also turned cautious as consumer spending weakens as the effects of tax rebate checks fade and Americans continue to cope with tumbling house prices and gasoline that topped $4 a gallon two months ago.

The auto industry is at the forefront of the manufacturing slump. Sales of cars and light trucks in July slid to a 12.5 million annual rate, the lowest level since 1993, according to industry figures.

General Motors Corp. Chief Executive Officer Rick Wagoner said Aug. 16 he's not yet seeing signs of a recovery in the U.S. economy or in vehicle sales.

The sluggish economy helped push GM, the world's largest automaker, to a $15.5 billion loss in the second quarter. ``It still feels to me like we're in it,'' Wagoner said of the economic slowdown.

Bloomberg Survey
============================================
                               ISM      ISM
                              Manu   Prices
                             Index    Index
============================================

Date of Release              09/02    09/02
Observation Period            Aug.     Aug.
--------------------------------------------
Median                        50.0     82.0
Average                       49.9     81.2
High Forecast                 52.0     88.0
Low Forecast                  48.5     70.0
Number of Participants          66       11
Previous                      50.0     88.5
--------------------------------------------
4CAST Ltd.                    49.5     ---
Action Economics              50.5     70.0
Aletti Gestielle SGR          50.2     75.0
Argus Research Corp.          52.0     ---
Banc of America Securitie     49.5     ---
Bank of Tokyo- Mitsubishi     50.6     ---
Bantleon Bank AG              49.3     ---
BBVA                          48.5     ---
BMO Capital Markets           50.0     88.0
BNP Paribas                   49.0     ---
Briefing.com                  50.2     ---
CIBC World Markets            51.0     ---
ClearView Economics           50.5     ---
Commerzbank AG                49.0     ---
Credit Suisse                 49.5     82.0
Daiwa Securities America      51.5     82.0
Danske Bank                   50.0     ---
DekaBank                      50.5     ---
Desjardins Group              50.0     ---
Deutsche Postbank AG          50.3     ---
Dresdner Kleinwort            49.8     87.0
DZ Bank                       51.0     ---
First Trust Advisors          49.9     ---
Fortis                        50.0     ---
FTN Financial                 51.0     ---
Goldman, Sachs & Co.          50.0     ---
H&R Block Financial Advis     49.5     ---
Helaba                        49.5     ---
HSBC Markets                  50.0     82.0
IDEAglobal                    49.5     ---
Informa Global Markets        49.0     ---
ING Financial Markets         49.5     81.0
Insight Economics             50.5     ---
Intesa-SanPaulo               49.5     ---
Janney Montgomery Scott L     49.2     ---
JPMorgan Private Client       50.6     ---
Landesbank Berlin             48.5     ---
Landesbank BW                 48.5     ---
Lehman Brothers               51.0     ---
Lloyds TSB                    50.0     ---
Maria Fiorini Ramirez Inc     49.5     ---
Merk Investments              49.3     ---
Merrill Lynch                 50.0     ---
MFC Global Investment Man     49.0     82.5
Moody's Economy.com           50.0     ---
Morgan Stanley & Co.          49.0     ---
National Bank Financial       50.0     ---
Natixis                       49.0     ---
Newedge                       49.7     ---
Nomura Securities Intl.       49.5     85.0
Nord/LB                       50.5     ---
PNC Bank                      50.5     ---
RBS Greenwich Capital         49.5     ---
Ried, Thunberg & Co.          49.5     ---
Schneider Trading Associa     51.0     79.0
Scotia Capital                49.0     ---
Societe Generale              50.0     ---
Stone & McCarthy Research     49.3     ---
TD Securities                 50.0     ---
Thomson Financial/IFR         51.9     ---
Unicredit MIB                 50.0     ---
University of Maryland        50.5     ---
Wachovia Corp.                50.2     ---
WestLB AG                     49.3     ---
Westpac Banking Co.           49.5     ---
Wrightson Associates          49.5     ---
============================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net