The nation’s manufacturing sector expanded in May, but at a lower rate than Wall Street analysts expected, providing a further sign that the U.S. economy may be slowing. Many manufacturers also reported higher prices for raw materials.
The Institute for Supply Management, a trade group based in Tempe, Ariz., said Thursday that its manufacturing index registered 54.4 in May, down from 57.3 the month before and below the 56.5 reading that analysts had anticipated. It was the slowest growth reading since the gauge registered 53.5 last August.
A reading of 50 or more indicates expansion, while below 50 indicates contraction. The May figure represented the 36th consecutive month of growth.
The index is watched closely because it is among the first measures of the previous month’s economic activity.
Many experts believe the U.S. economy has begun to slow as higher interest rates have reduced demand for housing while rising fuel prices have put a crimp in consumer spending. The U.S. economy expanded at a strong 5.3 percent annual rate in the first quarter, according to government figures.
The manufacturing index was one of several economic reports issued Thursday.
In Washington, the Labor Department said that the productivity of American workers rebounded at a rapid clip at the start of this year and wages posted a solid gain as well. The Commerce Department said that total construction spending dipped by 0.1 percent in April, the first setback since June 2005. Much of the weakness came from a 1.1 percent fall in residential construction, the biggest drop in this sector since January 2004.
The markets took the latest data in stride, with the Dow Jones industrial average gaining 41.46, or 0.4 percent, to 11,209.77 in midday trading. The Standard & Poor’s 500 rose 7.65, or 0.6 percent, to 1,277.74, while the Nasdaq composite index gained 15.92, or 0.7 percent, to 2,194.80.
Norbert J. Ore, chairman of the ISM’s survey committee, said that the slower manufacturing growth reflected “a significant loss of momentum in the last four months as the new orders index has slipped.”
He added that rising prices, driven by increases in raw materials, remain a concern.
The price index soared to 77 in May from 71.5 in April for the highest reading since the price index hit 78 last September.
Ore said it appeared to be reflecting the volatility in energy prices. He added: “I also think we’re at the point in the cycle where commodity prices are holding up ... copper, steel, chemicals ... so there are a number of basic commodity industries where sellers have significant pricing power.”
The index measuring new orders registered 53.7 in May, down from 57.6 in April and off significantly from the 61.9 reading of February.
Production, meanwhile, weakened to 57.2 in May from 60.4 the previous month while the inventories index contracted to 48 in May from growth of 51.3 in April.
David Huether, chief economist with the National Association of Manufacturers in Washington, D.C., said the softening of the overall index and weakening of the production gauge were consistent with forecasts of slower economic growth.
“The outlook we have for the economy is to decelerate through the year,” Huether said, adding that he expected the manufacturing index to remain around 54 to 55.
The report said that 13 industries reported growth in May: industrial and commercial equipment and computers, primary metals, tobacco, apparel, instruments and photographic equipment, paper, food, chemicals, wood and wood products, transportation and equipment, electronic components, furniture, and miscellaneous.