- Harm Bandholz, chief U.S. economist at UniCredit Research
US manufacturing activity dropped in November for the first time in three years, as the sector has been faltering due to a strong US Dollar and deep spending cuts by energy firms. However, strong automobile sales indicated the US economy remained on a firm footing. The Institute for Supply Management reported that its factory index declined to 48.6 last month, the lowest reading since June 2009, down from 50.1 in October. While a reading below the key 50-mark threshold signals contraction in manufacturing activity, the gauge remained above 43.1, which is associated with a recession. Manufacturers have been struggling with US Dollar strength, weaker China's and Europe's growth and lower oil prices. The ISM's gauge of new orders dropped 4 percentage points to 48.9 last month. Still, weakness in the sector, which accounts for only 12% of the economy, is unlikely to argue the Fed out of the decision to hike interest rates at its meeting on December 16.
Other data showed a robust increase in construction spending in October, which is likely to offset the drag from manufacturing on fourth quarter economic growth. The Commerce Department said construction spending increased 1.0% to a seasonally adjusted $1.11 trillion rate, the highest since December 2007, after climbing 0.6% in September.
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