US factory activity failed to gain steam in April after slowing for five straight months, but stronger-than-expected vehicle sales suggested the economy was finding some momentum after almost stalling in the first quarter. Still, the sluggishness in the manufacturing sector and other data on Friday showing construction spending hit a six-month low in March indicated that the anticipated acceleration in growth in the second quarter could disappoint.
That could see the Federal Reserve delaying raising interest rates until later this year. The economy expanded at a 0.2 percent annual pace in the first three months of the year, slammed by bad weather, a strong dollar and a now-resolved labor dispute at the West Coast ports, as well as lower oil prices, which have undercut domestic energy production.
"The reacceleration in growth will not come fast enough for many, especially those looking for a liftoff by the Fed to happen sooner," said Diane Swonk, chief economist at Mesirow Financial in New York.
The Institute for Supply Management said its index of national factory activity was at 51.5 in April, matching the March reading, which had been the lowest since May 2013. The index had declined since November and economists had expected it to rise to 52 in April. A reading above 50 indicates expansion in the manufacturing sector. While new orders rose last month, a gauge of factory employment contracted for the first time since May 2013 and recorded its lowest reading since September 2009.
Manufacturing has been hit by the dollar's 12 percent appreciation against the currencies of the United States' main trading partners since June. The buoyant currency has hurt export growth and profits of multinational corporations, including Procter & Gamble Co , the world's largest household products maker, and prompted Colgate-Palmolive and healthcare conglomerate Johnson & Johnson to cut their profit forecasts for the full year.
Whirlpool Corp, the world's largest maker of home appliances, lowered its profit forecast and sales outlook for 2015. Manufacturing, which accounts for about 12 percent of the US economy, is also being pressured by the lower oil prices, which have caused oil-field companies to slash spending on exploration and well drilling. Caterpillar Inc has warned the dollar and weak oil prices will hurt profits this year. Consumers were upbeat about both current conditions and expectations for the future. More consumers said it was a good time to buy a major household item and a vehicle. There was also an increase in consumers saying it was a good time to buy and sell a house, which should support home sales.
Separately, the Commerce Department said construction spending slipped 0.6 percent to an annual rate of $966.6 billion in March, the lowest level since September. Construction spending was weighed down by a 1.6 percent decline in private residential construction spending, the biggest such decline since June. Public construction outlays were also weak.