-Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC
Manufacturing activity in the U.S. unexpectedly contracted last month at the fastest pace in four years, indicating that a decline in business and government spending is weighing on the top global economy. The factory index of the Institute for Supply Management came at 49, the lowest level since June 2009. Economists expected the PMI to climb to 51 in May.
Federal budget cuts coupled with global economic woes may continue to add pressure on manufacturing in the U.S., the sector that accounts for 12% of the world's largest economy. However, strong car demand and expansion in residential construction are likely to support an increase in production in the second half of the year. Manufacturers predict sales will gain 4.8% this year, up from prior forecast of 4.6%.
Spending on construction rose 0.4% in April to $860.8 billion on a yearly basis but missed estimate of a 1.1% gain, according to the Commerce Department.
Automobile sales may boost manufacturing in the nearest term as households take advantage of record low interest rates to buy new cars. U.S. total vehicle sales hit 15.3 million units in April compared to 14.9 million units in the preceding month.
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