Factory Activity Index Slips in April

U.S. manufacturing grew for a third straight month in April but at a slower pace, an industry report said Wednesday, signaling that economic growth has slowed and will keep the Federal Reserve from raising interest rates soon.

A drop in new orders held back the Institute for Supply Management’s monthly manufacturing index in April to 53.9, down from 55.6 in March. Any reading above 50 suggests growth in manufacturing. “While the economy continues to recover, it’s just not as robust a pace of recovery as we saw in the first quarter,” said Conrad DeQuadros, economist at Bear Stearns.

Separately, construction spending fell 0.9% in March to a seasonally adjusted $874-billion annual rate, after a revised 0.7% gain in February. Spending fell from its robust pace during the mild winter in part because of a large drop in public construction projects.

It was the first drop in construction spending since September, when hijacked airliners destroyed the World Trade Center and briefly halted the economy.

“These numbers reinforce the argument that the Fed would not move [to raise rates] in the next two meetings” May 7 and in late June, said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco.

After an 18-month slump that ended in a runoff of inventories left over from boom times, factories are boosting output to meet a rise in new orders. But firms have not recovered enough to raise employment or capital spending--key to sustaining growth.