US factory activity powers ahead

WASHINGTON • A measure of US manufacturing activity surged last month - likely as steel and aluminium tariffs caused disruptions to the supply chains, resulting in factories taking longer to deliver goods.

The Institute for Supply Management (ISM) said yesterday its index of national factory activity jumped to a reading of 60.2 last month from 58.7 in May. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 per cent of the American economy.

"Demand remains robust, but the nation's employment resources and supply chains continue to struggle," said Mr Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

"Respondents are overwhelmingly concerned about how tariff-related activity is and will continue to affect their business."

The United States is engaged in tit-for-tat tariffs with its major trade partners, including China, Canada, Mexico and the European Union. Analysts fear the tariffs could disrupt supply chains, undercut business investment and potentially wipe out the fiscal stimulus from a US$1.5 trillion (S$2.1 trillion) tax cut package.

The ISM's supplier deliveries sub-index soared 6.2 points to 68.2 last month. A lengthening in suppliers' delivery time is normally linked to increased activity, which is a positive contribution to the ISM index.

The survey's new orders index slipped, as did the measure of factory employment. The prices paid index also fell last month.

A separate report from the Commerce Department yesterday showed construction spending increased 0.4 per cent in May.

Data for April was revised down to show construction outlays rising 0.9 per cent instead of the previously reported 1.8 per cent surge. The government revised the construction spending data going back to January 2011 in the May report.

Economists polled by Reuters had forecast construction spending gaining 0.5 per cent in May. Construction spending accelerated 4.5 per cent on a year-on-year basis.

The downward revision to April data could see economists cut further their second-quarter gross domestic product (GDP) estimates.

Growth forecasts for the April-June period were slashed last Friday after the government reported weaker-than-expected consumer spending in May.

The Atlanta Federal Reserve is forecasting second-quarter GDP rising at a 3.8 per cent annualised rate. The economy grew at a 2 per cent pace in the first quarter.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 03, 2018, with the headline 'US factory activity powers ahead'. Print Edition | Subscribe