Aug 2, 2002 3 min read

By Hope Yen AP Business Writer

NEW YORK (AP) – Manufacturing activity grew more slowly in July and jobless claims are up, according to economic reports released Thursday, underscoring an economy struggling to fully recover from last year’s recession and the Sept. 11 attacks.

“The big rebound from the terrorist attacks has slowed up,” said Ed Peters, chief investment officer for PanAgora Asset Management in Boston. “Whether the recovery is slow enough to say there’s a real pause is not clear.”

On Wall Street, stocks sagged in early afternoon trading. The Dow Jones industrials fell 128 points to 8,608 and the Nasdaq was off 32 points to 1,297.

The Institute for Supply Management reported Thursday that its index of business activity slipped to 50.5 percent in July from a 56.2 percent in June. It was the sixth straight month of growth, but it fell below analysts’ expectations of 55.0. An index above 50 signifies growth in manufacturing.

Construction spending, meanwhile, declined by 2.2 percent in June from the previous month, the Commerce Department reported Thursday. That pushed down the value of construction projects to $820.8 billion, the lowest level since August 2000.

The construction figures also were weaker than forecasts of analysts, who predicted a 0.3 percent rise. Construction spending dropped by 2 percent in May, a bigger decline than previously reported.

Economists called the batch of data disappointing but not particularly alarming. A leveling off is somewhat expected given the economy’s growth spurt shortly after Sept. 11 and it appears doubtful that a turbulent stock market could derail the recovery, they said.

“The economy doesn’t go in one direction forever,” said Gary Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis. “We had good solid strength in the beginning of the year. It appears it cooled off this summer.”

After bolting out of the starting blocks at the beginning of the year, the economy lost momentum in the spring, growing at an annual rate of just 1.1 percent. That was down from a 5 percent rate in the first quarter of this year.

Given the slowdown and continuing economic uncertainties, many economists believe the Fed will leave short-term interest rates at 40-year lows at its next meeting Aug. 13. The Fed has held rates steady all year long. Growing numbers of economists predict rates will be left alone for the rest of the year.

The construction weakness in June was led by a 3.4 percent cut in spending on commercial projects, including office buildings and hotels, by private builders. The government also scaled back spending by 3.1 percent, with cuts reported for industrial complexes, highways, schools and hospitals.

Spending on home building by private companies dipped by 0.9 percent.

In a third report from the Labor Department, new claims for unemployment insurance rose last week by a seasonally adjusted 20,000 to 387,000. That pushed claims to their highest level since early July.

The increase comes after claims fell sharply in the prior two weeks.

In the jobless claims report, Thomas Stengle, a statistician with the Labor Department, cautioned against reading too much into the figures because they tend to bounce around a lot this time of year.

Auto plants temporarily shut down to retool assembly lines for new models this time of year. Difficulties in adjusting for these seasonal factors can distort the numbers.