US Manufacturing Shrinks; Construction Spending Up

Paul Taggart | Bloomberg | Getty Images

A machinist working at the Windle Mechanical Solutions manufacturing facility in Philadelphia, Pennsylvania.

U.S. manufacturing activity contracted in May for the first time in six months as new orders slipped and there was less demand for exports, a new industry report showed. A separate report showed that U.S. construction spending rose slightly, but fell short of estimates.

The Institute for Supply Management (ISM) said its index of national factory activity in May fell to 49.0 from 50.7 in April, short of expectations for 50.7.

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A reading below 50 indicates contraction in the manufacturing sector. The last time the ISM manufacturing index fell below 50 was November 2012, shortly after the U.S. East Coast was hit by a massive storm.

The gauge for new orders dropped to 48.8 from 52.3, while a measure of employment edged down to 50.1 from 50.2. Production fell to 48.6 from 53.5.

The exports index fell to 51.0 from 54.0, while imports held up relatively better, slipping slightly to 54.5 from 55.0.

Though growth has cooled in recent months, before May the national reading had managed to stay in expansion territory, unlike some regional reports that have shown shrinkage.

Economic growth overall in the second quarter is expected to slow from the first quarter's 2.4 percent pace.

Construction Misses Forecast

A separate report showed that business spending pushed U.S. construction outlays slightly higher in April, offsetting declines in projects at private homes and in the public sector.

Construction spending rose 0.4 percent to an annual rate of $861 billion, a smaller gain than the 0.8 percent increase that was expected by analysts polled by Reuters, Commerce Department data showed on Monday.

The department revised March spending to show a 0.8 percent decline, which was a smaller drop than initially reported.

The data supports the view that government austerity is holding back economic growth this year. Public sector spending at construction sites fell 1.2 percent in April, hit by a sharp decline in state and local outlays, which hit a seven-year low.

Also holding back overall spending, private residential construction spending eased 0.1 percent lower. The drop appeared to be led by declines in home improvement spending, as outlays on building homes increased during the month.

Businesses, however, ramped up spending to build utilities, and overall private nonresidential construction spending rose 2.2 percent.