Factory activity slowed in August

A measure of U.S. factory activity shrank less in August than a month earlier in a hopeful sign that the malaise in manufacturing is no longer deepening.

The Institute for Supply Management’s manufacturing gauge edged up to a six-month high of 47.6, from 46.4 in July, according to data released Friday.

Readings below 50 indicate contraction.

The group’s gauge was helped by an increase in the production index to a three-month high of 50, as well as improvements in measures of employment and supplier deliveries.

While the overall gauge of manufacturing has contracted for 10 straight months, the figures hint conditions are stabilizing at weak levels.

Producers are starting to see some signs of relief after companies made strides reducing an inventory overhang and consumer spending on merchandise picked up.

“The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement,” Timothy Fiore, chair of the ISM manufacturing survey committee, said in a statement.

Stock rally fades after report

A rally in stocks faded as bond yields climbed after a strong manufacturing report offset optimism with jobs data signaling the Federal Reserve is close to ending its hiking cycle.

The S&P 500 closed with a small advance ahead of Monday’s U.S. holiday, while notching its best week since June.

Tesla dropped 5%, while energy shares rallied as oil topped $85 a barrel.

Treasury two-year yields reversed course after falling as much as 11 basis points in the immediate aftermath of the August payroll figures. The dollar hit a three-month high.

The jobs report showed a labor market undergoing a controlled cooling, illustrated by solid hiring, slower earnings growth and more people returning to the workforce.

From wire reports

The moderation gives the Fed room to pause rate increases this month while keeping options open for another hike later in the year.