Manufacturing Shrinks Less Than Forecast, Slump Not Worsening

Manufacturing in America shrank less than forecast in May, further evidence that international demand for American-made goods is keeping factories busy amid the domestic economic slump.

The Institute for Supply Management said its factory index rose to 49.6 from 48.6 in April; 50 is the dividing line between contraction and expansion. Production expanded for the first time in three months while a measure of prices climbed to the highest level since 2004, the group also reported.

The figures, along with a Commerce Department report yesterday showing April construction spending dropped less than forecast, eased concern that the economic downturn will intensify. Gross domestic product in America rose at a 0.9% pace in the first quarter, capping the weakest six-month performance in five years, the government said last week.

"These reports are showing some stabilization in the economy," a senior economist at Bank of America Corp. in New York, who forecast the ISM index would rise to 49.5, Peter Kretzmer, said. "There is just a very strong level of competitiveness for U.S. manufacturing firms."