NEW YORK (Reuters) - The pace of growth in U.S. manufacturing slowed last month, though improvement in October new orders suggested stable but slow growth for the U.S. economy.
While the survey from the Institute for Supply Management on Tuesday frustrated expectations for a pick-up in factory activity, analysts said the report bolstered views that the U.S. economy would avoid another recession.
The index of national factory activity dipped to 50.8 in October from 51.6 the month before, missing expectations of 52.0. A number above 50 signals expansion.
But in a positive sign, the ISM new orders index rose above 50 for the first time in four months, to 52.4 from 49.6, while the prices paid index fell to its lowest level since April 2009, to 41.0 from 56.0.
"There is no question that manufacturing activity has slowed a bit in response to the weakness that we are seeing out of Europe," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina.
"What this report really highlights is that the economy is really still stuck in slow growth mode, and we are unlikely to shake that any time soon."
The data came as the Federal Reserve began its two-day policy-setting meeting. The central bank's statement due on Wednesday may provide hints on how close it is to expanding asset purchases.
Fears the economy could be heading for another recession have ebbed in recent months as growth accelerated in the third quarter after a weak performance in the first half of 2011.
Auto sales, an early indicator of consumer demand, were a bright spot in October as major automakers reported figures on Tuesday pointing to the strongest showing for industry-wide vehicle sales since the start of 2011.
Economists said a drop in inventories in the ISM report showed companies were being conservative amid global financial uncertainty, but that should leave businesses in a better position when demand picks up.
Inventories fell to 46.7 from 52.0, while the employment gauge was relatively stable at 53.5 compared to 53.8 in September.
The slowdown in U.S. manufacturing followed data on Tuesday showing similar trends in Canada, Britain and China.
Factory activity in Asia's big export economies slowed to its weakest rate in nearly three years in October, while a sharp decline in British manufacturing provided the latest sign that Europe is on the brink of recession.
"We're starting to see a broader slowdown globally. You had global activity moving along at a reasonable pace, but that's starting to fade," said Tom Porcelli, chief economist at RBC Capital Markets in New York.
U.S. stocks extended declines and Treasuries prices briefly ticked up immediately following the data, but investors were more focused on Greece's debt crisis.
Wall Street stock indexes fell about 2 percent midday after Greek Premier George Papandreou said he will put Greece's bailout deal through a referendum, throwing the long-awaited plan for more European Union rescue funds into disarray.
Manufacturing growth has slowed since the spring because of supply chain disruptions and fears of another recession. While some regions have contracted, the national ISM survey has continued to indicate expansion, though it is off more than 10 points since February.
John Silvia, chief economist at Wells Fargo, said the ISM employment gauge suggested Friday's U.S. government labor market report will show gains in manufacturing jobs in October. The nonfarm payrolls report is expected to show the sector added 1,000 jobs last month after losing 13,000 in September, according to Reuters data.
The economy is expected to have gained 95,000 jobs overall, while the unemployment rate is seen steady at 9.1 percent.
In other U.S. data on Tuesday, growth in U.S. construction spending slowed in September as governments cut back on building and maintaining schools and public transportation, a government report showed.
Total construction spending rose 0.2 percent to an annual rate of $787.21 billion, the Commerce Department said, shy of expectations for a gain of 0.3 percent. August's construction spending was upwardly revised to a gain of 1.6 percent.
Spending on public construction fell 0.6 percent in September, with cuts felt across government departments from healthcare and schools to public safety and conservation.
Federal spending dropped 6.8 percent, its steepest decline since December. State and local outlays edged up 0.1 percent.
In the private sector, construction spending rose 0.6 percent, with residential spending up 0.9 percent and nonresidential spending up 0.3 percent.
Chrysler Group LLC posted a 27 percent gain in U.S. sales last month, its best October figures in four years. General Motors Co posted a 2-percent sales gain last month, though it was a weaker rise than some analysts had expected.
Reporting by Leah Schnurr and Jason Lange; Editing by Padraic Cassidy