U.S. Manufacturing Grows In April, Even As Economy Slows Down

Manufacturing Is Growing, Even As The Economy Slows

NEW YORK (By Steven C. Johnson) - The pace of expansion in U.S. manufacturing slowed in April for a second straight month but was brisker than expected, data showed on Monday, a sign the sector was holding up despite slower national growth.

A separate report showed private residential investment helped boost construction spending in March, and borrowing by small businesses rose, albeit more slowly than in February, which may signal more hiring down the road.

Slower growth in the manufacturing sector, which has been at the forefront of the U.S. recovery, appeared to corroborate evidence the economy had lost some momentum in recent months.

The Institute for Supply Management said its index of national factory activity fell to 60.4 in April from 61.2 the previous month, its second monthly slide. A reading above 50 indicates expansion.

Previous regional reports had showed a slowdown in manufacturing last month. ISM's broader national report has been expanding since August 2009 and hit a peak in February 2011.

"A lot of the growth is being driven by exports and the weaker dollar," said Norbert Ore, chairman of the ISM Manufacturing Survey Committee.

The ISM reading beat the median estimate of 60 in a Reuters poll of 64 economists, suggesting the sector was still firmly in expansionary territory.

"With what is happening in the world at this point, you would expect (manufacturing numbers) to be down," said Kurt Karl, chief U.S. economist at Swiss Re.

"We've had (higher) oil prices, we have had hits to Japan, we have had hits domestically from production and supply constraints from the Japanese disruptions and we are still over 60 on the manufacturing (index). So it is a very good report."

PRICES UP, CONSTRUCTION SPENDING ENCOURAGING

Data last week showed overall U.S. growth slowed to a 1.8 percent annual rate in the first quarter, off its 3.1 percent pace over the final three months of 2010.

Economists said consumers were spending less as higher food and gasoline prices dented their incomes.
Input prices in manufacturing also neared a three-year high, the ISM report showed. Last week, U.S. Treasury Secretary

Timothy Geithner said the economy faces new headwinds from soaring oil prices, but said a forecast of 3 to 4 percent growth was reasonable.

Another report released on Monday showed construction spending rose at its fastest pace in 11 months in March, though February's data was revised to show a bigger decline than originally reported.

Also on Monday, PayNet Inc reported that borrowing by small U.S. businesses rose in March, while loan defaults at such firms fell to the lowest level in more than four years.

"Small business balance sheets are pristine right now," said William Phelan, PayNet's president and founder. "There's a lot of potential there (for growth), but we need to see the demand come back to ignite it."

Borrowing by small businesses is considered a harbinger for the broader economy because they account for as much as 80 percent of new hiring.

(Additional reporting by Lucia Mutikani in Washington, Ellen Freilich in New York and Ann Saphir in Chicago; Editing by Dan Grebler)

Copyright 2010 Thomson Reuters. Click for Restrictions.

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