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September 6, 2007

U.S. construction spending sees sharp drop in July as economy slows

Monthly result worst since January: analyst

WASHINGTON

Growth in the manufacturing sector slowed in August while construction spending dropped sharply in July, indicating turmoil in the housing and financial markets could be spilling over to the broader economy.

The Tempe, Ariz.-based Institute for Supply Management, an organization of corporate purchasing executives, said its index of business activity in the manufacturing sector registered 52.9 in August, down from 53.8 in July.

August was the seventh straight month of expansion for the sector, whose exports have been a bright spot for the U.S. economy.

The Commerce Department said Tuesday that construction spending dropped 0.4 per cent in July, compared with June, the weakest showing since a 0.6 per cent fall in January.

It was a bigger drop than economists had been expecting and underscored the continued drag the severe slump in housing is having on building activity.

There were several positive signs for the economy in the ISM survey. The production, employment and export indices increased, while new orders declined but remained above 50.

Manufacturers of agricultural equipment, aircraft and construction equipment, among others, have benefited from a weak U.S. dollar, which makes U.S. goods less expensive abroad.

Tom Runiewicz, industrial economist at economic consulting firm Global Insight, said approximately 30 per cent of the farm and construction equipment made in the United States is for export.

Equipment maker Deere & Co. said last month that its third-quarter profit jumped 23 per cent on strong international sales. World-wide equipment sales grew five per cent, mainly due to a 16 per cent rise in agricultural equipment sales and a 15 per cent improvement in commercial and consumer equipment sales, the company said.

“Overall, this report reinforces other indicators showing modest but uneven growth across the manufacturing sector,” David Resler, chief economist at Nomura Securities, wrote in a research note. “Both the new orders and production index are encouraging for continuing growth as we head toward the fourth quarter of 2007,” Norbert Ore, the chair of the ISM’s survey committee, said.

New export orders increased to 57 from 56.5 in July.

Associated Press

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