The U.S. factory sector retrenched in August, highlighting manufacturers’ struggles and a broader drag on the economy from weak business spending and an uncertain global outlook.
The Institute for Supply Management’s index of manufacturing activity fell to 49.4 in August from 52.6 in July. A reading above 50 indicates factory activity is growing, while a reading under 50 signals contraction.
The index over the past 12 month has averaged 50.2, a figure barely into expansion territory. The overall economy also has been growing only slowly, propped up by brisk consumer spending.
“The U.S. manufacturing sector remains in an extended period of stagnation following a modest improvement in recent months,” said Michael Gapen, chief U.S. economist at Barclays.
The August reading for the index was the first below 50 since February and the lowest since January.
The manufacturing sector stumbled through the end of 2015 and into early 2016, as a strong dollar, which makes exports more expensive for foreign customers, weak global growth and low commodity prices tamped down demand for an array of products.
The sector stabilized and for five consecutive months—March through July—had been slowly expanding amid strong gains in consumer spending. Household outlays accelerated this spring to their strongest pace in a year and a half, according to separate government data.
But U.S. businesses still appear cautious—investment in structures and equipment is down, and profits have been getting thinner at many firms. That could crimp business investment in coming months.