Manufacturing activity sinks to 4-year low

Christopher S. Rugaber | AP Business Writer

WASHINGTON (AP) — A measure of U.S. manufacturing fell in May to its lowest level since June 2009 as slumping overseas economies and a pullback in business spending reduced new orders and production.

The Institute for Supply Management said Monday that its index of manufacturing activity fell to 49 last month from 50.7 in April. That's the lowest level in nearly four years and the first time the index has dipped below 50 since November. A reading under 50 indicates contraction.

A gauge of new orders fell to 48.8, its lowest level in nearly a year. Production and employment also declined.

Manufacturing has struggled this year as weak economies abroad have slowed U.S. exports. U.S. businesses have also reduced their pace of investment in areas such as equipment and computer software.

At the same time, consumers are holding back on spending more for factory-made goods, possibly a reflection of higher Social Security taxes that have reduced paychecks this year.

A separate report Monday said a measure of Chinese manufacturing dropped last month to 49.2 from 50.4 in April. As with ISM's index, a reading below 50 indicates contraction. The figure added to signs that a resurgence of China's economy, the world's second-largest after the United States, might be losing momentum.

Europe remains mired in recession and is buying fewer U.S. goods. In the first three months of the year, U.S. exports to Europe fell 8% compared with the same period a year ago.

After a steep fall in March, companies in April stepped up their orders for U.S. machinery, electronic products and other equipment that reflect their investment plans. Overall orders for so-called durable goods jumped 3.3% in April from the previous month.

Much of the April gain reflected more orders for commercial aircraft. But excluding the volatile transportation sector, which includes aircraft and autos, orders rose 1.3% in April, a big turnaround after a decline in March.