US manufacturing growth recedes in April

NEW YORK - US manufacturing growth slowed in April for the fifth straight month, but economists said the further evidence of an economic soft patch was not likely to deter the Federal Reserve from raising interest rates.

Data from the Institute for Supply Management on Monday showed the industry group's index of national factory activity fell to 53.3 in April from 55.2 in March. Wall Street analysts had predicted the survey would show little change.

The April index receded to the lowest level since July, 2003. However, a reading above 50 still indicates the factory sector is growing, which it has done for nearly two years.

"The jury is still out on the depth and size of the soft patch in the economy due to the jump in oil prices, and these reports do not answer that question decisively," said Lynn Reaser, chief economist at Banc of America Capital Management in Boston.

The prices paid portion of the index dipped to 71 from 73. But economists said prices remain strong and that the Fed will continue to focus on inflation over evidence of a slowing economy when considering its rate policy on Tuesday.

"There is still quite a bit of price pressure coming from commodity price increases -- the Fed is still on track on raising rates," Reaser said.

The Fed is widely expected to raise official interest rates by 25 basis points to 3.00 per cent.

"The prices paid is still way up there. Inflation is still running a little hot, enough that the Fed will continue to raise interest rates," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, North Carolina.

Analysts also studied the employment component of the manufacturing data for clues to Friday's April non-farm payrolls report.

The employment index dipped to 52.3 from 53.3 in March, which could temper talk of a sizable gain in April payrolls. Analysts on average are looking for a rise of 170,000 jobs from 110,000 in March.

US Treasuries prices initially ticked higher after release of the data. But they met selling once investors realized the information was not likely to dissuade the Fed from its policy of rate tightening.

US stocks largely shrugged off the data and gained on a dip in oil prices to 10-week lows.

Another report on Monday showed US construction spending jumped a surprisingly large 0.5 per cent to a record high in March as home building hit record levels.

Construction outlays climbed to a seasonally adjusted annual rate of US$1.052 trillion ($1.45 trillion) from a revised US$1.047 trillion in February, the Commerce Department said. Wall Street analysts polled by Reuters had expected a 0.3 per cent gain.

Total private construction rose 0.5 per cent to US$816 billion from $811 billion the previous month, while private residential construction climbed 0.3 per cent to US$585 billion from a revised US$584 billion in February. Both figures were fresh record highs.

- REUTERS