Manufacturing in the U.S. unexpectedly contracted in May at the fastest pace in four years, indicating industry will provide scant support for the world’s largest economy.
The Institute for Supply Management’s factory index fell to 49 from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction, and last month’s reading was the lowest since June 2009. The median forecast of 81 economists surveyed by Bloomberg was 51.
Factory activity has waned since reaching an almost two-year high in February as across-the-board federal budget cuts took hold and overseas markets struggled to improve. At the same time, demand for automobiles, the rebound in residential construction and lean inventories may spark a pickup in orders and production in the second half of the year.
“Manufacturing is really stymied by slow corporate spending and government spending cutbacks,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who was the only analyst in the Bloomberg survey to correctly project the drop in the index. “Foreign demand is pretty anemic.”