Data Point to Slowing Economic Expansion
U.S. manufacturing growth slowed in June and construction spending in May unexpectedly staged its biggest drop since September 2004, data showed Monday, adding to signs the economy is cooling.
Analysts said the data supported the view that U.S. economic growth was moderating from its heady pace in the early part of the year but did not send up fresh warning flares.
“I don’t think it’s too earth shattering. It’s sort of a continuation of what we’ve been experiencing lately -- a little more sluggish growth,” said Jon Brorson, managing director of growth equities at Neuberger Berman in Chicago.
An index of national factory activity released by the Institute for Supply Management dropped to 53.8 in June from 54.4 in May, falling short of economists’ forecasts for a rise to 55. A reading above 50 indicates growth in the factory sector.
Meanwhile, construction spending fell 0.4% to a seasonally adjusted annual rate of $1.206 trillion in May from April’s $1.211 trillion, down from a record level in March. The two straight monthly falls were the first back-to-back drops since February and March 2003.
Analysts had expected a 0.2% rise in the overall construction spending number.
Details of the manufacturing report were mixed, with price pressures within the factory sector easing slightly and new orders continuing to grow, although employment contracted.
The index of prices paid fell to 76.5 in June from 77.0 in May, while new orders, an indicator of future growth, rose to 57.9 in June from 53.7 in May.
The employment number in the report slipped to 48.7 from 52.9 in May, the first time it had been below 50 since October 2003.
“Although ... not perhaps quite as weak as it looks, this softer survey nevertheless further underlines that the economy is losing momentum,” Richard Iley, senior economist at BNP Paribas in New York, said in a note.
In the construction spending report, private nonresidential spending, seen as an indicator of business investment, fell 0.3%, the first decline since July 2005.
Residential construction fell 0.8% in May after falling in April.
Housing activity has started to slow from a multiyear boom as mortgage interest rates edge higher after two years of Fed rate hikes.
The U.S. economy grew at a blistering 5.6% clip in the first quarter but is widely expected to ease in the second half of the year as the housing sector tapers off.
