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Manufacturing in the U.S. stagnated in July as orders slumped to the lowest level in almost seven years, signaling higher raw material costs and slower spending are hurting producers.

The Institute for Supply Management's factory index fell to 50, a higher reading than forecast, from 50.2 in June, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between expansion and contraction.

Manufacturers are scaling back to protect profits and prevent inventories from growing as demand weakens. The drop in the value of the dollar has made U.S. goods more affordable overseas, leading to gains in exports that are keeping factories from sinking.

“The economy is essentially stalled,'' David Resler, chief economist at Nomura Securities International Inc. in New York, said in a Bloomberg Television interview. “It will remain that way for the time being. We will see bigger job losses down the road.''

Economists forecast the index would decrease to 49 from 50.2 in June, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 47.8 to 52.5.

A separate report from the Labor Department today showed U.S. employers cut jobs in July for a seventh consecutive month. Payrolls fell by 51,000, less than forecast, and the jobless rate increased to 5.7 percent, the highest level in four years.

The purchasing managers' gauge of new orders for factories decreased to 45, the lowest level since October 2001, from 49.6. The production measure rose to 52.9 from 51.5.

Exports Cool

A shrinking trade deficit has helped some companies withstand slower U.S. sales. Still, the ISM report showed exports, while still growing, are starting to cool. The group's export measure fell to 54 from 58.5 in June.

“Were it not for exports at this point, I think I would take the position that manufacturing, overall, would be in a significant recession,'' Norbert Ore, chairman of the ISM survey, said on a conference call. “But the export market has held up quite well for us.''

The trade gap narrowed to a $395.2 billion annual pace in the second quarter, the smallest in seven years, the Commerce Department said yesterday. The reduction added 2.4 percentage points to growth, the most since 1980.

The employment index increased to 51.9 from 43.7 in June credit reports http://payday-badcredit.com. BorgWarner Inc., the world's biggest maker of automatic- transmission parts, said yesterday it will cut 1,000 jobs in North America because of declining auto production in the region.

The Auburn Hills, Michigan-based company also said that second-quarter profits rose to $87.5 million, bolstered by overseas demand.

Europe, Asia

“In Europe and Asia, our businesses are expected to experience sustained growth,'' Chief Executive Officer Tim Manganello said in a statement. “In North America, our operations will remain focused on fuel efficiency and cost management.''

Today's jobs report showed manufacturers cut 35,000 workers from payrolls.

Auto-industry figures today showed purchases of car and light trucks in the U.S. fell to a 12.5 million annual rate in July, the lowest level since March 1993. Separately, General Motors Corp. reported a second-quarter loss of $15.5 billion, its fourth consecutive quarterly decline.

The purchasing managers' index of prices paid fell to 88.5 last month from a three-decade high of 91.5 in June. Economists surveyed by Bloomberg News forecast the gauge would decrease to 88.

Costs Rising

“In North America, our input costs are going up faster than our prices,'' John Faraci, chief executive officer of International Paper Co. in Memphis, Tennessee, said yesterday in a Bloomberg Television interview. “Inflation's a real issue.''

U.S. consumers also face inflation concerns. Prices surged 5 percent in the past year, the biggest jump since 1991, the Labor Department said July 16. The increase was led by surging expenses for food and fuel.

A gauge of supplier deliveries was unchanged at 55.1. The inventory index dropped to 45 from 51.2, and the group's measure of order backlogs decreased to 43, from 47.5.

Even with the challenges, manufacturing is faring better than during prior recessions. While the Institute's manufacturing index fell to a five-year low of 48.3 in February, it was still well above the 42.1 reading reached in February 2001, a month before the start of the 2001 recession.

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