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Manufacturing is another headache for US economy

NEW YORK--Manufacturing in the United States shrank at its sharpest clip in more than three years last month, a survey showed on Tuesday, the latest sign that the slowing global economy is weighing on an already weak U.S. recovery.

August was the third month in a row of contraction in the factory sector, according to an Institute for Supply Management survey. Firms hired the fewest workers since late 2009, a possible red flag for the August U.S. jobs report due on Friday.

ISM's index of national factory activity fell to 49.6 in August, from 49.8 in July, and shy of the 50.0 median estimate in a Reuters poll of economists. A reading below 50 indicates contraction in the key sector.

“Overall, today's report keeps intact concerns that industrial output growth could slow to a crawl in the remaining months of 2012,” said JPMorgan economist Michael Feroli.

Manufacturing had faded as a driver of the recovery in the U.S. economy which is still struggling to add jobs more than three years after the recession was formally declared over.

On Monday, data showed a contraction in manufacturing had deepened in both Europe and China.

U.S. unemployment in July remained high at 8.3 percent. Weak jobs growth has caused deep concern at the Federal Reserve. It could add more stimulus as soon as next week. The weak economy is also center stage in the presidential election campaign.

President Barack Obama, heading for the Democratic National Convention this week, has previously highlighted the revival of manufacturing as a success story of his economic policies.

Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, called the ISM index “a disappointing number that can bring the Fed a step closer to offering more support to the U.S. economy.”

The U.S. dollar briefly trimmed gains against the euro after the ISM data was released, while Treasuries held steady and stocks slipped.

A separate gauge of U.S. manufacturing showed the sector grew in August but at a pace that was still one of the weakest since October 2009.

The Markit Manufacturing Purchasing Managers Index stood at 51.5 last month, higher than the 51.4 reading in July thanks to a slight increase in output and overall new orders.

But August's final reading, released on Tuesday, fell short of a preliminary estimate as exports declined for a third straight month, and firms were slow to add new workers.

New export orders were a drag on activity, as slow or negative growth in Europe and elsewhere sapped foreign demand for U.S. products, the survey showed.

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