By Lucia Mutikani
WASHINGTON (Reuters) - U.S. factory activity slowed for a second straight month in April, weighed down by shortages of skilled workers and rising capacity constraints, but strengthening global demand continues to support manufacturing.
The Institute for Supply Management (ISM) survey published on Tuesday also showed a jump in the cost of raw materials, with prices for steel and other materials increasing because of tariffs imposed by the Trump administration.
The ISM said its index of national factory activity dropped to a reading of 57.3 last month from 59.3 in March. A reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.
The survey's prices index increased 1.2 points to 79.3, the highest reading since April 2011. Last month, price increases occurred across 17 of 18 industry sectors.
Rising raw material costs are the latest indication that inflation pressures are building and could attract the attention of Federal Reserve officials who were due to start a two-day policy meeting on Tuesday. Data on Monday showed a jump in annual inflation rates in March. In addition, wages grew at their quickest pace in 11 years in the first quarter.
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The ISM's measure of factory employment dropped in April and the ISM said there were indications that labor and skill shortages were affecting production output.
"Demand remains robust, but the nation's employment resources and supply chains continue to struggle," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
President Donald Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum in March. However, on Tuesday he postponed imposition of the tariffs on Canada, Mexico and the EU.
Manufacturing remains underpinned by a firming global economy as well as a weakening U.S. dollar, which is boosting the competitiveness of American-made goods on the global market.
Prices for U.S. Treasuries extended losses after the data while the dollar rose against a basket of currencies. U.S. stocks were trading lower.
CONSTRUCTION SPENDING SLUMPS
A separate report from the Commerce Department showed construction spending unexpectedly fell in March as a sharp decline in homebuilding led to the biggest drop in investment in private construction projects in more than seven years.
Construction spending tumbled 1.7 percent. February data was revised to show construction spending increasing 1.0 percent instead of the previously reported 0.1 percent gain.
Economists polled by Reuters had forecast construction spending accelerating 0.5 percent in March. Construction spending rose 3.6 percent on a year-on-year basis.
In March, spending on private construction projects declined 2.1 percent. That was the largest fall since January 2011 and followed a 1.2 percent increase in February. Outlays on private residential projects plunged 3.5 percent, the biggest drop since April 2009, after advancing 1.2 percent in February.
Spending on both single and multifamily housing projects fell in March.
Spending on nonresidential structures slipped 0.4 percent in March after surging 1.2 percent in the prior month.
Investment in public construction projects was unchanged last month after edging up 0.1 percent in February. Spending on federal government construction projects jumped 2.2 percent to the highest level since September 2011. That followed a 0.5 percent rise in February.
State and local government construction outlays fell 0.3 percent after being unchanged in February.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)