U.S. factory activity slows, construction spending up

WASHINGTON (Reuters) - U.S. manufacturing activity slowed last month and construction spending rose less than expected in April, which could temper hopes of a sharp pick-up in economic growth this quarter.

The Institute for Supply Management (ISM) on Monday said its index of national factory activity fell to 53.2 in May from April's reading of 54.9. A reading above 50 indicates expansion.

The slowdown reflected some cooling in new order growth, production and hiring.

"It looks softer across the board. All the components grew at a slower pace. I don't think this signifies a big concern but manufacturing won't be leading the economy," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

In a separate report, the Commerce Department said construction spending increased 0.2 percent to an annual rate of $953.5 billion, the highest level since March 2009.

The increase was less than economists' expectations for a 0.6 percent gain. March's construction spending was revised to show a 0.6 percent rise instead of the previously reported 0.2 percent advance.

Coming on the heels of weak consumer spending data for April, the reports could cast doubts on the economy's ability to reach a 4 percent growth pace in the second quarter as some economists anticipate.

The economy shrank at a 1.0 percent rate in the first quarter, largely reflecting a brutally cold winter and a slow pace of restocking by businesses.

Prices for U.S. Treasury debt rose on the data, while the dollar fell from a three-week high against the yen.

Spending in April was led by public construction outlays, which rose 0.8 percent. Spending on both federal government and state and local government projects increased solidly.

But spending on private construction projects was flat as a 0.1 percent rise on residential outlays was offset by a 0.1 percent dip in nonresidential projects.

Still, private residential construction spending hit its highest level since March 2008. There were increases in both single and multi-family home building, a hopeful sign for housing, which is struggling to find momentum.

A run-up in mortgage rates has stymied the housing market recovery. Investment in home building and nonresidential structures such as factories and gas pipelines contracted in the first three months of this year for a second straight quarter.

(Reporting By Lucia Mutikan; Additional reporting by Richard Leong and Rodrigo Campos in New York; Editing by Andrea Ricci)