US manufacturing index sinks to June 2009 level

WASHINGTON (AP) — A measure of US manufacturing fell in May to its lowest level since June 2009 as slumping overseas economies and weak 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.

The ISM index had sunk during the recession to a low of 33.1 in December 2008. Since the recession ended in June 2009, it peaked at 59.6 in February 2011.

Monday’s report showed that a gauge of new orders fell to 48.8, the lowest in nearly a year. Production dropped to its lowest point since May 2009, and employment dipped.

Manufacturing has struggled this year as weak economies abroad have slowed US exports. US 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 result of higher Social Security taxes, which have reduced most workers’ paychecks this year.

Monday’s weak manufacturing reading suggests that the economy will slow in the April-June quarter from its 2.5-percent annual pace in the first three months of the year. Many analysts expect the economy’s annual growth rate this quarter to be about two percent.

The drop below 50 in the ISM’s index does not mean the overall economy is shrinking. Manufacturing represents just a small fraction of US output.

“The other 88 percent of the economy appears to be doing better, led by housing,” said Jim O’Sullivan, an economist at High Frequency Economics, a forecasting firm.

The ISM’s survey found that the furniture and wood products industries reported higher new orders, a sign that they’re benefiting from rising home sales and construction.

The drop below 50 in the ISM index may also be temporary, economists said.

“A jump in summer auto production should give manufacturing a decent domestic boost in coming months,” Ted Wieseman, an economist at Morgan Stanley, said in a note to clients.

On Monday, auto companies reported healthy sales for May.

Ford Motor Co. said its US sales rose 14 percent as demand for its F-Series pickup reached a six-year high. Nissan’s US sales jumped 25 percent compared with a year ago. Chrysler reported its best May figures since 2007; its sales rose 11 percent.