Factory Activity Growth Slows

U.S. manufacturing expanded at a slower-than-expected rate in May, constrained by high energy prices and fat inventories, especially in the automobile sector, figures from a private research organization showed Wednesday.

Although manufacturing activity expanded in May for the 24th consecutive month, the rate has slowed in each of the last six months, and May’s reading was the lowest since June 2003, according to the Institute for Supply Management.

In contrast, a separate report by the Commerce Department said construction spending rose 0.5% to a record level in April, as office construction surged and activity in the housing market hit an all-time high.

The Commerce Department said the increase pushed building activity to a seasonally adjusted annual rate of $1.066 trillion in April, after gains of 0.6% in March and 1.2% in February.

The Institute for Supply Management’s manufacturing index stood at 51.4 in May, down from a reading of 53.3 the previous month and below analysts’ expectations for a reading of 52. The index is at its lowest level since it was 50.4 in June 2003.

The data indicate that the manufacturing sector is losing momentum, the institute said. A reading of 50 or above in the index means the manufacturing sector is expanding, however. A figure below 50 represents a contraction.

The growth rate for new orders was slower in May than it was in April, the institute said. The new orders index for May was 51.7, down from 53.7 in April. Twenty-four percent of the companies responding to the institute’s survey said new orders were worse in May, up from 17% in April.

The institute’s employment index contracted in May, ending 18 months of expansion.

A third report found that average U.S. home prices in the first quarter climbed 12.5% from a year earlier.

The Office of Federal Housing Enterprise Oversight said home values appreciated 2.21% during the first quarter from the fourth quarter of 2004, or at an annual rate of 8.82%.

The 12.5% increase in home prices over the last year marked the biggest four-quarter jump since the third quarter of 2004, when appreciation surpassed any increase recorded in more than 25 years, the oversight agency said.

California saw a 25.4% price increase over the last year, second only to Nevada, where prices jumped 31.2%.