Washington, May 1 (Bloomberg) -- A U.S. manufacturing index rose less thanexpected in April, a sign factories are having trouble pulling out of a slump. ``Manufacturing is the economy's weakest spot and still is strugglingsignificantly,'' said Mark Zandi, chief economist at Economy.com in WestChester, Pennsylvania. The National Association of Purchasing Management's factory index increasedto 43.2 last month from 43.1 in March. Analysts had expected April's index torise to 44. A reading below 50 signals contraction, and the index has been under that levelsince August 2000. This year, companies such as Cisco Systems Inc., the No.1 maker of computer-networking gear, and DuPont Co., the second-largest U.S.chemical maker, have announced job cuts to pare costs as consumer spendingflagged. While the economy expanded 2 percent in the first quarter, that pacemay have flagged in the second, analysts say. Auto sales show that business remains subdued. General Motors Corp., thelargest automaker, and Ford Motor Co., the second largest, each reported todaythat their sales of light vehicles built in North America fell 16 percent in Aprilfrom a year earlier. DaimlerChrysler AG reported an 18 percent drop in U.S.sales excluding Mercedes-Benz. Ford also lowered its production plans.
Growing Pessimism
A separate NAPM survey of purchasers found that more than a third -- 38percent -- are ``worried or pessimistic'' about business over the coming year.That compares with 5 percent who were pessimistic in December. ``Two years ago there was an insane euphoria that isn't going to occur for awhile,'' Ken Guiles, purchasing director for Eastman Chemical Co., said today atNAPM's semiannual outlook conference in Orlando, Florida. ``But once peopleget back to business as usual in a modestly growing economy, then thedemand will grow.'' A majority of those responding to the group's survey said investment in newequipment would decline this year. Also, manufacturers are now operating at thelowest percentage of their capacity than at any time in the last decade, thesurvey showed. Federal Reserve policy makers pointed to a slowdown in business investmentwhen they surprised investors with a fourth half-percentage point cut in theirbenchmark interest rate last month. In a statement that accompanied thereduction, central bankers said ``capital investment has continued to soften.'' Lower interest rates will prop up consumer confidence, and purchases ``thathave been deferred will be brought off the back burner,'' Guiles said.
Construction Spending Rises
Real estate and construction, meantime, keep buoying the economy, in itsrecord 11th year of expansion. Work on office buildings, home improvementsand public projects paced a 1.3 percent increase in construction spending, theCommerce Department reported separately. The monthly increase in spending, to a record $854.4 billion at an annual rate,was the fifth in a row. Treasury securities and stocks rose after the reports. The 10- year Treasurynote rose 3/8, pushing the yield down 5 basis points to 5.29 percent. The DowJones Industrial Average rose 164 points, or 1.5 percent, to close at 10,898.34.The Nasdaq Composite Index rose 52 points, or 2.5 percent, to 2,168.38. The April factory survey gave some reasons for optimism. Manufacturersreduced inventories at the fastest pace since October 1996. At the same time,the indexes measuring production and new orders rose for the third consecutivemonth. Inflation pressures stayed tame. An index of prices paid for raw materials fell inApril to the lowest level in two years. And purchasers said in the survey theyexpect the cost of materials to stay unchanged and labor costs to decline. The factory executives expect to hire 1.3 percent fewer workers this year, thesurvey showed. Purchasing managers at companies that don't manufacturegoods expect to hire 0.5 percent fewer employees.
Cisco, Hewlett-Packard
Business spending on equipment and software slowed in the first quarter, thesecond consecutive decline, the Commerce Department reported last week.Investment fell at a 2.1 percent rate in the first three months of this year afterdropping at a 3.3 percent pace in the fourth quarter. The back-to-back declineswere the first since the first half of 1991. Cisco, which said in March it is firing 8,500 people, or 18 percent of itsworkforce, and Hewlett-Packard Co., the No. 2 computer maker, have reportedfewer orders. Demand is also slowing in Europe and Asia, making a quickturnaround even more difficult to engineer. ``It's clear that the U.S. economy will not rebound quickly in the second half ofthe year,'' Carly Fiorina, chief executive at Hewlett-Packard, said last weekduring a trip to New Delhi, India. ``Our sense is that we have reached a bottom.It will not get any worse, but it will not get better for a couple of more quarters.''
Automakers
Automakers, who led the U.S. economy into a slowdown, will be an importantpart of a recovery. Ford said today it making 40,000 fewer vehicles than the company had earlierplanned for the second quarter. At the new number, 1.19 million vehicles,production would be 10 percent below the year-ago quarter. While GMannounced an increase to 1.332 million cars and light trucks from 1.3 million,production would be 15 percent lower than a year earlier. GM said its U.S. sales in April totaled 352,467 cars and light trucks built inNorth America. Ford sold 301,661, and DaimlerChrysler's Chrysler Group sold187,119. Industrywide, the U.S. auto sales rate fell to 16.3 million vehicles for April from17.9 million in the year-earlier month, analysts estimate. The decline would bethe seventh straight. An index of manufacturing in the Chicago area -- which includes automakers --rebounded this month from a 19-year low in March. The NAPM-Chicago'smonthly index of regional manufacturing rose to 38.9 from 35 in March. That wasstill below the level of 40 expected by analysts. The Chicago index has shown contraction in that region's manufacturing forseven months, the longest since a 12-month slide that began in August 1990.Last month's index was the lowest since April 1982.