WASHINGTON – U.S. factory activity expanded at a slower pace in April compared with March as manufacturers pulled back sharply on hiring and cut their stockpiles.
The Institute for Supply Management said Wednesday that its index of manufacturing activity slipped to 50.7, down from 51.3 in March and the slowest pace this year. A reading above 50 indicates expansion.
A measure of hiring fell to 50.2, the lowest level since November. That suggests factories cut hiring again in April.
But several aspects of the report were encouraging: Measures of new orders and production rose. Order backlogs also grew at a faster pace.
The ISM is a trade group of purchasing managers.
The drop in factory activity may be a sign that companies worried about across-the-board government spending cuts that began on March 1. Businesses slowed their investment in facilities and equipment in the first quarter. And weaker growth overseas threatens demand for U.S. exports.
Factories may also see slower sales this spring because consumers are starting to feel the impact of higher Social Security taxes. Americans increased their spending from January through March at the fastest pace in more than two years. But spending on goods fell in March, a sign that the tax increase may be catching up with consumers.
Consumers are more optimistic that the job market is healing and will deliver higher pay later this year, according to a survey of April consumer confidence released Tuesday. And lower gas prices could offset some of the pinch from the tax increase.
One area of manufacturing that remains strong is auto production: Ford, GM, Chrysler and Nissan all reported double-digit U.S. sales increases last month, signaling the best April for car and truck sales in six years.
Still, factories cut jobs in March after five months of hiring. And manufacturing output declined in March, the Federal Reserve said earlier this month, despite a jump in auto production.
The economy grew at an annual rate of 2.5 percent from January through March, the government said last week. That was an improvement from the anemic growth of 0.4 percent in the final three months of last year. Most economists expect growth will slow in the current quarter and remain subpar for most of the year.