U.S. manufacturing unexpectedly contracted in November, falling to its lowest in over three years in a sign the sector may be struggling to gain traction, according to an industry report released on Monday.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 49.5 in November from 51.7 the month before. The reading was shy of expectations of 51.3, according to a Reuters poll of economists.
A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.
The index hit its lowest since July 2009 and contracted after two straight months of growth that followed a soft period over the summer months.
The employment index fell to 48.4, and was below 50 for the first time since September 2009.
New orders fell to 50.3 from 54.2 and were at their lowest since August. Prices paid were down to 52.5 from 55.0, compared to an expected 53.0.
A separate report showed that U.S. construction spending rose in October by the most in five months, with stronger spending on homes outpacing tepid gains in business and government projects.
Construction spending climbed 1.4 percent to an annual rate of $872.1 billion, the highest level in over three years, the Commerce Department said on Monday. Analysts polled by Reuters had expected a 0.5 percent gain.
The department also said superstorm Sandy, which hit the East Coast at the end of October, likely had a minimal effect on the data.
Home building is expected to add to economic growth this year for the first time since 2005, although the housing sector remains a shadow of what it was before the 2007-09 recession.
Spending on private residential projects rose 3 percent in October, a reflection of this year's improving housing market.
Muting the gain in overall construction, however, private spending on nonresidential projects edged up just 0.3 percent.
Businesses have shown signs they are holding back on investments because federal austerity plans could trigger a recession next year, and the construction data could be another sign of flagging confidence.
Public sector construction spending rose 0.8 percent. State and local spending dropped 0.1 percent, while outlays on federal government projects increased 10.7 percent.