U.S. factory activity cools slightly in April; March inflation falls
U.S. factory activity slowed in April while consumer spending was unchanged in March and a key inflation measure recorded its first monthly drop since 2001, but economists still expect an interest rate increase in June as the labor market tightens.
The weak reports on Monday came ahead of the Federal Reserve’s two-day policy meeting on Tuesday. The U.S. central bank is not expected to raise interest rates at the end of the meeting on Wednesday. The reports did little to change expectations of a rate hike in June.
“We don’t expect that will prevent the Fed from hiking interest rates again at the June meeting, at least not as long as employment growth rebounds in April and May,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
The Institute for Supply Management (ISM) said its index of national factory activity dropped to a reading of 54.8 last month, the weakest reading since December, from 57.2 in March.
A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. The ISM index had risen since last November, scaling a 2-1/2-year high in February, amid optimism over President Donald Trump’s pro-business policy proposals.
It has declined in the last two months and some economists say the retreat probably reflects caution among business as they await implementation of the proposals. The Trump administration last week proposed a tax plan that includes cutting the corporate income tax rate to 15 percent from 35 percent, but offered no details.
The manufacturing recovery is being supported by the energy sector as steady increases in crude oil prices boost drilling activity. The government reported on Friday that spending on mining exploration, wells and shafts surged at a record rate of 449 percent in the first quarter.
Last month, the ISM survey’s new orders sub-index fell to its lowest level since November and a measure of factory employment fell to a six-month low.
Prices for U.S. government bonds were trading lower, while the dollar was marginally lower. U.S. stocks were little changed.