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The Honolulu Advertiser
Posted on: Thursday, May 2, 2002

U.S. manufacturing slows

By Carlos Torres
Bloomberg News Service

WASHINGTON — U.S. manufacturing expanded less than expected in April, suggesting the economy's rebound slowed after the strongest quarterly growth in two years.

The Institute for Supply Management's factory index slipped to 53.9 last month from 55.6 in March. The drop in the index reflected slowdowns in orders and employment. The index has been greater than 50, signaling growth, since February. Those gains follow an 18-month slump that began in August 2000.

"There has definitely been a shift of gears here from recovery to more moderate growth," said John Silvia, chief economist at Wachovia Corp. in Charlotte. "We are still producing, but the momentum has slowed."

The economy surged in the first quarter as businesses slowed the pace at which they reduced their inventories. That process is about at an end, and until consumer and business demand accelerates, growth is likely to be slower, economists said.

Carmakers are likely to report stepped up orders and production soon. General Motors Corp. and DaimlerChrysler AG's Chrysler unit reported increases last month as total car sales climbed to an annual rate of 17.4 million from an average 16.3 million during the first quarter. Last year, vehicle sales totaled 17.2 million, the second highest ever.

The economy expanded at a 5.8 percent annual pace in the first three months of the year, propelled by consumer spending and a slowing in the pace at which businesses cut inventories following a record decrease from October to December. Stockpiles fell at a $36.2 billion annual pace from January through March following a $119.3 billion drop in the last three months of 2001.

The pace of economic growth will probably slow to a 3.4 percent rate this quarter and stay close to that pace in the second half of the year, according to the latest consensus estimate of the Blue Chip Economic Indicators, as smaller adjustments are needed to get inventories in balance with demand.

Meantime, the economic rebound in the United States is helping the rest of the world recover. U.K. manufacturing expanded for a third month in April, an industry survey showed. The Chartered Institute of Purchasing and Supply's index rose to 53.4 last month from 50.6. A reading above 50 indicates expansion.

A separate report from the Commerce Department showed construction spending fell a larger-than-expected 0.9 percent in March, reflecting less work on government projects.