Manufacturing in the U.S. shrank less in May than forecast, further evidence that international demand for American-made goods was keeping factories busy amid the domestic economic slump.
The Institute for Supply Management said Monday that its factory index rose to 49.6 from 48.6 in April. A number below 50 indicates contraction, and a number greater than that denotes expansion. Production expanded for the first time in three months, while a measure of prices rose to the highest level since 2004, the group also reported.
The figures, along with a Commerce Department report showing April construction spending dropped less than forecast, eased concern that the economic downturn would intensify. U.S. gross domestic product rose at a 0.9% pace in the first quarter, capping the weakest six-month performance in five years, the government said last week.
"These reports are showing some stabilization in the economy," said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. "There is just a very strong level of competitiveness for U.S. manufacturing firms."
Economists forecast that the index would decrease to 48.5, according to the median of projections in a Bloomberg News survey.
The 0.4% decline in construction spending in April followed a 0.6% drop the prior month that was smaller than previously reported, the Commerce Department said in Washington. Economists projected the measure would fall 0.6%. The figure hasn't increased since September.
The Tempe, Ariz.-based institute's measure of prices paid increased to 87, a four-year high, from 84.5 a month earlier. Economists surveyed by Bloomberg News forecast the gauge would rise to 85.
Raw material costs may continue to hurt businesses in coming months. Futures prices for copper and crude oil have reached records in the last two months and have remained near those levels.
The institute's gauge of new orders increased to 49.7 in May from 46.5 in April, while a production measure rose to 51.2 from 49.1 the previous month, the group said. A gauge of supplier deliveries fell to 53.7 from 54 in April.