US factory activity grew more slowly in May

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By MARCY GORDON, Associated Press

WASHINGTON (AP) — U.S. manufacturing grew more slowly in May, hampered weaker hiring and declining production. But a measure of new orders rose to a 13-month high, suggesting factory activity will pick up in June.

The Institute for Supply Management, a trade group of purchasing managers, said Friday that its index of manufacturing activity fell to 53.5 in May, down from a reading of 54.8 in April. A reading above 50 indicates expansion.

Slower manufacturing growth followed a disappointing report on May employment that suggests the economy has weakened.

The Labor Department said U.S. employers created only 69,000 jobs in May, the fewest in a year. The unemployment rate ticked up to 8.2 percent from 8.1 percent in April.

A measure of employment in the ISM's survey slipped from April's level. But it showed that factories are still hiring at a solid pace. Industries reporting growth in May employment included clothing and leather, metals and mineral products.

The Labor Department's employment report showed factories added 12,000 jobs in May.

A gauge of new orders in the ISM survey rose to 60.1, the highest reading since April 2011. That could signal faster production in the coming months.

U.S. factory output increased in April, helped by a gain in auto production, the Federal Reserve reported two weeks ago. Busier factories have driven stronger hiring this year and helped the economy grow.

But regional surveys have signaled weaker growth in May. And a survey from the Federal Reserve Bank of Philadelphia showed manufacturing activity contracted in that region last month for the first time in eight months.

Orders for large factory goods edged up slightly in April. But a measure that tracks business investment spending fell for a second straight month. The decline in core capital goods could suggest that second-quarter growth is off to a slow start. Still, orders tend to fluctuate sharply from month to month.

Companies may be ordering less heavy equipment because an investment tax credit expired at the beginning of the year. Orders are likely to rebound later this year, economists say. Some may also be worried that Europe's debt crisis could worsen.

Manufacturing has been a key source of economic growth since the recession ended in June 2009. The sector has expanded for 34 straight months, according to the ISM's index.

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