Asia’s Woes Put the Pinch on U.S. Industrial Output

Asia’s economic crisis took another bite out of U.S. manufacturing in May as exports faltered and cheap imports pressured factory profits, an industry report showed Monday.

The National Assn. of Purchasing Management’s index declined to 51.4 last month from 52.9 in April. May’s drop was the second straight, leading to the lowest reading since October 1996. The data suggest a more subdued pace of growth in manufacturing.

Separately, construction spending rose 0.8% in April to $630.1 billion, the Commerce Department said. That was the fifth straight monthly increase and followed a 0.1% increase in March. It suggests that domestic demand is vibrant.

“This type of tension has been developing for some time,” said Lyle Gramley, a former Federal Reserve Board governor who is now a consulting economist at the Mortgage Bankers Assn. of America. “The consumer is doing very, very well. Manufacturing output is still rising, but it is rising more slowly,” as businesses contend with bulging inventories, Gramley said.

The drop in the NAPM index underscored that Asia’s slowdown is taking a toll as expected.

Cheap imports, which have helped keep inflation in check, are pushing prices lower. The closely watched NAPM price index, considered by some an indication of the inflation rate, fell to 41.1 in May from 41.2 during April.

The new orders index fell to 52.1 from 56.8. And the index measuring export orders decreased to 47.5 from 49.7. Readings of 50 or more in the NAPM indexes mean more of those surveyed reported increases than decreases; readings below 50 mean more participants reported declines than gains.

“Negative impact from East Asia is expected to slow the U.S. economy through the balance of the year,” said Tim O’Neill, chief economist at Harris Bank and Bank of Montreal, in a recent forecast.

Still, the fallout from Asia is “expected to diminish in early 1999, with the continued strength in consumer spending anticipated to result in a rebound in GDP growth,” O’Neill said.

That strength was evident in April’s spurt in construction spending, led by commercial and government building.

Spending for commercial buildings, such as factories and warehouses, rose 2.3% during April--the largest increase since a 3.3% rise in July--following a revised 0.6% increase in March.

Government-sponsored construction rose 0.4% as outlays for highways, schools, sewer systems and water supply facilities increased. In March, spending on public works fell 1.9%.

Housing construction spending rose 0.9% in April after an increase of 1.5% in March. Spending on single-family homes rose 1.2% after gaining 1.9% in March.

Construction activity is expected to stay firm in coming months as home builders keep pace with robust demand, analysts said. The strength of the housing market is reflected in new construction of single-family homes during April, which showed a 0.7% increase.

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Purchasing Managers Index

May: 51.4

Source: National Assn. of Purchasing Management

Construction Spending

In billions of dollars, seasonally adjusted:

April: $630.1 billion

Source: Commerce Department