Reports dampen hopes of faster economic growth

NEW YORK -- Dampening hopes that the economy is picking up steam, U.S. manufacturing continued to shrink in June and construction spending dropped in May by the largest amount in a year.

The Institute for Supply Management said Tuesday that its widely watched manufacturing index was at 49.8 last month, up from 49.4 in May. But a reading under 50 indicates shrinking activity.

Meanwhile, the Commerce Department reported that the seasonally adjusted annual value of construction projects under way in May was $869.8 billion, a 1.7 percent decline from April.

Private builders cut back spending on both homes and office buildings, and spending on big public works projects declined to its lowest level in nearly a year.

The stock market initially fell on the reports, but turned higher by the close. The Dow Jones industrial average was up more than 55 points to 9,040, while the Nasdaq edged up just over 1 percent to 1,640.

Manufacturing has been the weakest link in the economy's struggle to get back to full speed. The sector has throttled back production and cut jobs because of weak demand and competition from imports.

The ISM's index of employment in the manufacturing sector rose 3.2 points, but at 46.2, it still indicated shrinking employment for the 33rd consecutive month.

Norbert J. Ore, who heads the survey for the institute, said that despite the overall weakness in the sector, increases in new orders and production are an encouraging sign for the second half of the year.

To nudge the economy, the Federal Reserve cut a key interest rate last week by a quarter percentage point to 1 percent, the lowest level in 45 years.

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