n But factory orders dropped more than expected.
The Associated Press
WASHINGTON – U.S. manufacturing activity contracted at a slower-than-expected pace in April, raising hopes that a steep plunge that began last fall may be moderating. The performance was driven by a rise in new orders reflecting higher business and consumer spending.
The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index rose to 40.1 in April from 36.3 in March. A reading below 50 indicates a contraction. Wall Street economists had expected the index to rise to 38 in April, according to survey by Thomson Reuters.
As new orders rose sharply, company inventories shrank for a 36th straight month – suggesting that future production will need to ramp up and eventually help stimulate the economy.
More orders signal that higher consumer spending – which accounts for about 70 percent of economic activity – is causing businesses to boost demand. Such spending is crucial to an economic recovery.
The index, based on a survey of members of the Tempe, Ariz.-based group, had fallen steadily as the economy deteriorated late last year, hitting a 28-year low in December. The index covers indicators such as new orders, production, employment, inventories, prices, and export and import orders.
In a separate report, though, the Commerce Department said factory orders fell 0.9 percent in March, worse than the 0.6 percent drop that economists had been expecting. Many companies have been battered by the prolonged recession in the United States and by spreading weakness overseas that has sharply reduced their foreign sales.
For March, orders for durable goods dropped 0.8 percent as strength in demand for commercial jetliners and military aircraft offset weakness in other areas. Orders for nondurable goods, products such as petroleum, chemicals and paper, dropped 1 percent after a 0.2 percent fall in February.