U.S. factories grow at slowest pace in 2 1/2 years; hiring falls

WASHINGTON -- U.S. factory activity grew last month at its slowest pace since May 2013 as manufacturers pared their stockpiles and cut jobs.

The Institute for Supply Management said Monday its index of factory activity slipped to 50.1 in October from 50.2 in September. The figures barely signal growth, which is any reading above 50.

U.S. manufacturers have been squeezed this year as a strong dollar and weak economies in China and other key foreign markets have cut into exports. A high dollar makes U.S. goods pricier overseas while lowering prices for imports that compete with American products.

Monday's report showed a measure of hiring fell sharply, from 50.5 to 47.6. That means manufacturers cut jobs last month.

Still, the report contained some bright signs: New orders jumped, suggesting that business may pick up in coming months. And a gauge of production rose for the first time since July.

"We're hopeful this will mark the low," Ian Shepherdson, an economist at Pantheon Macroeconomics, said in a note to clients. "It looks as though the downshift in manufacturing activity may be coming to an end."

Both manufacturers and their customers are cutting back on stockpiles, which slows production as companies sell existing goods rather than order new ones. But that trend slowed last month and soon may be complete, said Bradley Holcomb, chair of the ISM's manufacturing survey committee.

Sharp declines in oil and natural gas prices have led drilling companies to reduce orders for steel pipe and other equipment used to build rigs.

That trend, combined with the strong dollar, has helped lower the ISM's index from roughly 57 late last year to 50.1. The ISM is a trade group of purchasing managers.

Strong car sales, which are running at their highest level in a decade, are one of the few trends that are working in the opposite direction and boosting factory output.

A slowdown in China, the world's second-largest economy, has delivered a direct hit on construction equipment makers such as Caterpillar. Yet there are signs China's economy is stabilizing: A survey of its manufacturers over the weekend found that its factory activity still is contracting but at a slower pace.

Other reports point to ongoing weakness in U.S. manufacturing, however. Factory production has fallen for two straight months, according to figures compiled by the Federal Reserve.

And orders for long-lasting factory goods, an indication of future output, have tumbled in the past two months, a Commerce Department report last week indicated.

Many retailers and other businesses stockpiled too many goods in the winter and spring and were left with crowded warehouses and store shelves. As they work off the excess supply, they have cut back on orders for new goods.

A slowdown in stockpiling was a big reason the U.S. economy weakened in the July-September quarter, the government said Thursday. The economy expanded at a 1.5 percent annual rate in the third quarter, far below the 3.9 percent pace in the April-June quarter.