U.S. manufacturing shows signs of stability as export orders rise

Mon May 2, 2016 2:23pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. factory activity expanded at a more moderate pace in April due in part to a slowdown in new orders, but a rise in export orders to a near 1-1/2-year high and signs an inventory overhang drag was fading offered hope for the manufacturing sector.

Another report on Monday showed construction spending rose to an 8-1/2-year high in March and the prior month's outlays were revised higher, implying a small upward revision to the first quarter's pedestrian growth rate.

"Manufacturing is moving forward but we have the tortoise, not the hare in this race," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Institute for Supply Management (ISM) said its index of national factory activity slipped to 50.8 last month from a reading of 51.8 in March. Despite the fall, April marked the second straight month of expansion and was also the second highest reading in the last eight months.

A reading above 50 indicates expansion in the manufacturing sector, which accounts for 12 percent of the U.S. economy. Economists had forecast the ISM manufacturing index dipping to 51.4 last month.

Manufacturing has been hurt by weak export growth stemming from a strong dollar and soft global demand.

The sector has also been hammered by relentless aggressive spending cuts in the energy sector in the aftermath of last year's plunge in oil prices. Efforts by businesses to reduce an inventory overhang have resulted in fewer factory orders, leading to further erosion in the manufacturing sector.

U.S. stocks were trading higher on Monday, while prices for U.S. Treasuries fell. The dollar .DXY weakened against a basket of currencies.   Continued...

Jacob Bailey conducts assembly work on an SUV chassis at the General Motors Assembly Plant in Arlington, Texas June 9, 2015. REUTERS/Mike Stone