Manufacturing Growth Speeds Up for First Time in 6 Months

Courtesy of The New York Times. By THE ASSOCIATED PRESS

WASHINGTON — Manufacturing growth in the United States accelerated in May for the first time in six months, propelled by more new orders and an increase in hiring.

The Institute for Supply Management, a trade group of purchasing managers, said on Monday that its manufacturing index rose to 52.8 last month from 51.5 in April. That is the highest reading since February. A reading above 50 signals expansion.

Other data released on Monday showed that American consumers held back from spending more in April, deciding instead to channel income gains into savings, and that construction spending in the United States climbed in April to the highest level in more than six years.

The pickup in factory activity suggests the economy may be growing again after shrinking in the first three months of the year. Still, overall growth remains slow, held back by several factors. Americans have been reluctant to spend more, even as hiring has been healthy and lower gas prices have left them with more money to spend.

And the dollar has risen sharply in value, which makes American goods more expensive overseas and drags down exports. Economists forecast that the economy may expand at an annual pace of 2 percent in the second quarter, after contracting 0.7 percent in the first three months of the year.

A measure of new orders rose to the highest level since December and backlogs jumped, the institute said. A gauge of production fell, but remained above 50. The increase in orders points to greater production in the months ahead.

The figures are “better than expected, suggesting that weakness in manufacturing is past its peak,” Jim O’Sullivan, an economist at High Frequency Economics, said in a note to clients.

And a measure of employment jumped to 51.7, after falling below 50 in April. That means manufacturers added jobs last month.

Consumer spending was flat in April — the weakest performance in three months — after a revised 0.5 percent increase in March, the Commerce Department said on Monday. The March advance had been the biggest gain since last August. Personal income rose a healthy 0.4 percent.

The unchanged reading for consumer spending in April had been expected given weakness previously reported in retail sales and auto sales for the month.

Economists, however, forecast that spending will rebound in coming months. Solid gains in employment and incomes should translate into more confident consumers who are willing to spend more.

With income growing and spending flat, the personal saving rate jumped to 5.6 percent of after-tax incomes — the second-highest level since December 2012.

Economists predict consumers will start spending what they have saved from the big drop in gas prices. While those prices have risen a bit in recent weeks, they are still nearly $1 below the levels of a year ago.

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

“The April income and spending figures are another reminder that even though their incomes are rising at a healthy pace, households are still reluctant to boost spending more freely,” said Paul Ashworth, chief United States economist at Capital Economics, in a note to clients.

And construction spending climbed in April to the highest level in more than six years, driven by significant gains in housing, government spending and nonresidential construction.

Construction spending advanced 2.2 percent in April to a seasonally adjusted annual rate of $1 trillion, the highest level since November 2008, the Commerce Department said Monday. Spending had risen a more modest 0.5 percent in March.

The gain included a 0.6 percent increase in residential construction and a 3.1 percent jump in nonresidential activity like office buildings, hotels and shopping centers.

Government projects increased 3.3 percent, reflecting the biggest jump in spending on state and local projects in three years.

Economists predict that construction will provide solid support to the economy this year.

The April advance was the biggest one-month gain in three years and left construction activity more than 4 percent above where it was a year ago.

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