Manufacturing declines, but it may signal coming recovery

NEW YORK -- U.S. manufacturing declined again in May, but at a much slower rate -- a sign the sector could finally be poised for recovery.

In a report released Monday, The Institute for Supply Management, an industry group, said its manufacturing index was 49.4 percent last month, up from 45.4 in April. A reading below 50 means manufacturing activity is slowing; above 50 indicates the industry is growing.

The reading marked the third consecutive month of decline, but it topped the expectations of analysts and fueled speculation of a coming rebound in manufacturing.

"It does suggest the manufacturing sector is recovering," said John Silvia, chief economist for Wachovia Corp. "It appears as if the orders are there, and there are backlogs behind these orders so that there's some sustainability in terms of economic growth going forward."

The relatively upbeat tone of the ISM report contrasted with figures released by the government Monday showing a drop-off in construction spending to the lowest level in four months.

The Commerce Department said the value of construction projects declined by 0.3 percent in April to a seasonally adjusted annual rate of $862.6 billion, the third consecutive month of falling construction spending.

Economists had forecast a 0.2 percent increase.

"There are signs of life in manufacturing," said Norbert J. Ore, who oversees the index for ISM.

On Wall Street, investors appeared to focus mostly on the manufacturing data, pushing stocks sharply higher after the report's release. The Dow Jones industrial average closed up 47.55 at 8,897.81. The broader market finished mixed. The Nasdaq composite index fell 5.16 to 1,590.75, while the Standard & Poor's 500 index rose 3.41 to 967.00.

The last time the ISM index showed growth in manufacturing was in February, when it reached 50.5.

The ISM index is based on a survey of the managers who buy raw materials for manufacturing companies, giving them insight into the pace of industry.