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US manufacturing activity expanded for a third straight month in May, but growth in new orders continued to slow as factories grappled with sluggish overseas demand and weak capital spending in the energy sector.
Other data on Wednesday showed construction spending recorded its biggest decline in more than five years in April as spending fell broadly, which could prompt economists to lower their second-quarter growth estimates.
The Institute for Supply Management (ISM) said its index of national factory activity increased half a percentage point to a reading of 51.3 last month. The increase in the index largely reflected a jump in prices paid by factories for raw materials.
A reading above 50 indicates expansion in manufacturing, which accounts for about 12% of the US economy.
Despite signs that the economy is regaining speed in the second quarter, manufacturing remains constrained by the lingering effects of the dollar's surge and oil price plunge between June 2014 and December 2015.
With the dollar's rally fading and oil prices steadily rising, there is cautious optimism that manufacturing will eventually find its footing.
Although the ISM index has remained above expansion territory for three consecutive months, so-called hard data on manufacturing has been generally weak.
The government reported last week that orders for long-lasting manufactured capital goods, excluding defence and aircraft, fell in April for a third straight month.
A separate report from the commerce department showed construction spending tumbled 1.8% after an upwardly revised 1.5% jump in March. April's drop was the largest since January 2011.
Economists polled by Reuters had forecast constructionspending rising 0.6% in April after a previously reported 0.3% increase in March. Construction outlays were up 4.5% from a year ago.
The weak construction report bucked fairly strong April data on consumer spending, industrial production, goods exports and housing, which have bolstered views the economy was regaining speed after growth braked to a 0.8% annualised rate in the first quarter.
As a result of the soft report, second-quarter gross domestic product estimates, currently ranging as high as a 2.9% rate, could be cut. However, the sharp upward revision to March's construction spending suggests the first-quarter GDP growth estimate could be revised higher.
In April, construction spending was held down by a 1.5% drop in private construction, which was the largest decline since January 2013. Outlays on private residential construction also fell 1.5% as spending on multifamily buildings tumbled 3.1%.
Spending on private nonresidential structures plunged 1.5% in April. Weak spending on nonresidential structures such as gas and oil well drilling contributed to slow economic growth at the start of the year.
Public construction spending dropped 2.8% in April asoutlays on state and local government construction projects, thelargest portion of the public sector segment, tumbled 3%. Federal government construction spending slipped 0.2%.
