Factory Output Index Rises in May
U.S. manufacturing improved last month, suggesting the worst may be over for factories that slowed production during the war in Iraq, an industry report showed Monday.
The Institute for Supply Management’s manufacturing index rose to 49.4 in May from 45.4 in April, the biggest monthly gain since December. Order backlogs grew for the first time since last June. The reading below 50 signals that manufacturing still was contracting, just not as much as in the previous month.
“The sector may be on the verge of recovery from its recent doldrums,” said John Ryding, chief market economist at Bear Stearns Inc. in New York. “New orders and order backlogs point to further expansion in June. The weakest area remains employment.”
Separately, the Commerce Department said construction spending unexpectedly fell 0.3% to $862.6 billion at an annual rate in April, the third monthly decrease.
The manufacturing report’s new-orders component, which accounts for about a third of the overall index and is considered a leading indicator of future production, rose to 51.9 from 45.2 in April. The production index, a gauge of work being performed, rose to 51.5 in May from 47.
The institute’s employment index rose to 43 from 41.4. The index of inventories rose to 46.1 from 42.7, indicating inventories are being run down at a slower pace.
The backlog-of-orders index rose to 51 from 47.5. The new-export-orders index fell to 50.8 from 51.1. Supplier deliveries rose to 51.3 after reaching 50 in April.
The index of prices paid for raw materials fell to 51.5 from 63.5, the biggest monthly decline since 1973, mainly because energy prices fell after major combat subsided in Iraq and the nation’s oil fields were secured.
The fact that most of the price decline was in energy might ease concerns about deflation, some economists said. It also may bode well for earnings.
The decline in construction spending came as residential construction, which accounts for more than half the total, fell for the second consecutive month because housing starts eased. Nonresidential construction dropped by the most this year.
Commercial construction has been restrained as capacity use in April fell to 74.4%, the lowest in almost two decades, and office vacancy rates reached the highest in seven years. Although the lowest mortgage rates in more than four decades have supported real estate and helped underpin a weak economy, job losses and the Iraq war in April slowed new-house construction.
Construction of new houses, apartments and other dwellings dropped 0.3% in April to $449.9 billion at an annual rate, the largest decline since August. Home improvement spending increased 0.3% after dropping 0.8%.
