Factories Still Mired; Car Sales Fall Again

A broad measure of U.S. manufacturing released Tuesday showed factories are just slowly pulling out of their slump, while April sales at major domestic auto makers slid for the seventh straight month amid flagging consumer confidence.

But a separate report from the Commerce Department showed construction spending surged for the fifth straight month in March, underscoring one of the main pockets of strength in the slowing economy: housing. Spending rose 1.3% to a record $854-billion annual rate.

The National Assn. of Purchasing Management said its key gauge of manufacturing edged up to 43.2 in April from 43.1 in March. Though any reading below 50 signals contraction, April marked the third straight monthly improvement.

The association, whose managers handle purchasing and supplies at firms of all sizes, said that although the industrial sector remained mired in recession in April for a ninth straight month, the worst declines may be over and the sector probably will rebound this year.

But some analysts aren’t yet convinced that manufacturing is poised for a swift rebound.

“These data indicate that the manufacturing sector is still contracting and that signs of recovery are few and far between,” said Steve Wood, economist at FinancialOxygen, an advisory firm in Walnut Creek, Calif. “It is unlikely that the [Fed] has cut interest rates enough to revive the economy.”

Manufacturing, which accounts for about a fifth of the overall economy, has suffered the most from the current economic slowdown, which the Fed has attempted to forestall by cutting short-term interest rates four times since December.

Consumer spending, which dominates the economy, has been resilient, however, keeping growth plodding along slowly. Retail sales at chain and department stores rose in the last week with better weather bringing Americans out to shop.

But April sales by leading auto makers were bleak. General Motors Corp. and Ford Motor Co. said their domestic sales last month slumped 16%, while demand for vehicles by DaimlerChrysler’s Chrysler unit dropped 18%.

“As expected, we’re experiencing moderation in consumer demand, and April industry sales were softer than originally forecast,” said Bill Lovejoy, GM’s vice president of vehicle sales, service and marketing. “We remain cautiously optimistic about vehicle sales throughout the remainder of the year, and we still expect a soft landing.”

Citing flagging consumer confidence, Ford sales analyst George Pipas said would-be buyers “are not standing on the brakes, but they’ve backed off the throttle in April” after better-than-expected U.S. vehicle sales industrywide through this year’s first three months.

The 16% skid in sales of Ford, Lincoln and Mercury vehicles included a 22% slide in cars and a 12% drop-off in trucks compared with a year earlier.

Given the soft sales, Ford said it will trim second-quarter production by an additional 3% to 10% below the same period last year.

Ford’s high-profit sport-utility vehicles showed particular weakness last month. Sales of the Explorer dropped 16%, while demand for the Excursion tumbled 32%. Sales of Ford’s Windstar vans plunged 35%.

Meanwhile, the purchasing managers’ group said a bounce in new orders and shrinking inventories of unsold goods helped nudge its index up in April. It said it was encouraging that price pressures were moderating and that the pace at which firms were working off inventories from boom times had picked up.

“The good news is there’s no bad news,” said Norbert Ore, chairman of the group’s business survey committee. “We’ve probably seen the worst. The economy is decelerating more slowly now.”

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Purchasing Managers Index

April: 43.2

Source: National Assn. of Purchasing Management

Construction Spending

In billions of dollars, seasonally adjusted:

March: $854.4 billion

Source: Commerce Department