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Manufacturers see little improvement in July

WASHINGTON (MarketWatch) -- The latest snapshot of the U.S. manufacturing industry suggests growth has cooled off considerably over the past few months.

A gauge that measures the strength of the manufacturing sector remained under the key 50% mark for the second straight month. It's the first time that's happened since the tail end of the last recession.

The Institute for Supply Management's index was basically unchanged in July at 49.8% vs. 49.7% in June. Readings under 50% generally indicate that factory work is slowing; readings above that level indicate business is expanding.

"A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty," said Bradley Holcomb, chairman of the ISM's survey committee.

The index, drawn from a survey of senior executives, suggests growing uncertainty about events at home and abroad. The downturn in Europe, slackening growth in China and gridlock in Washington have hurt exports and raised fresh worries about a protracted slowdown.

"The U.S. economy seems stuck -- at best -- with little to no growth," said an executive at a company that makes clothes and leather goods.

An executive at a transportation-equipment maker also pointed to frozen federal spending in the U.S. and the prospect of sharp cuts next year unless Washington resolves an impasse over the government's budget.

"Continued slowdown in government military sector spending in advance of the presidential elections has seriously impacted business performance," the executive said.

The picture overseas is also cloudy. New export orders dropped to 46.5%, the worst reading in more than three years.

The heightened level of uncertainty has spurred many companies to scale back plans to hire additional workers. The ISM's employment gauge fell to 52.0% in July from 56.6% in June, the lowest reading since November 2009.

On a more positive note, the new-orders index rose to 48.0% from 47.8%, though it remained in contractionary territory. The new-orders index is an indication of future demand

The weakened ISM reading is just the latest in a series of indicators pointing to a cooling-off in the manufacturing sector, which led the U.S. recovery after the 2007-2009 recession ended.

Without stronger growth in manufacturing, economists say, it will be hard for the U.S. to expand at a much more rapid pace. The econony grew at a lackluster 1.5% pace in the second quarter, the U.S. reported last week.

"The softness in manufacturing indicators does not bode well for growth in the second half of the year," said senior economist Jeremy Lawson of BNP Paribas.

The Federal Reserve will decide later Wednesday whether to take further steps in a bid to improve the languishing economy. Read Fed preview.

In a separate report Wednesday, the government reported that construction spending rose 0.4% in June and a revised 1.6% in May.

As a result, economists say the most recent report on second-quarter growth could be revised slightly higher when the U.S. updates the number later this month.