Manufacturing falls to 3-year low

WASHINGTON — U.S. manufacturing shrank in November to its weakest level since July 2009, the Institute for Supply Management said Monday.

Worries about automatic tax increases in the New Year cut demand for factory orders and manufacturing jobs.

“The underlying picture for manufacturing is certainly one of weakness,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Soft U.S. final demand, a need to adjust inventories, weakening exports - all of that adds up to a weak manufacturing sector.”

The index of manufacturing conditions fell to a reading of 49.5. That’s down from 51.7 in October and the lowest point since one month after the recession ended.

Readings above 50 signal growth, while readings below that indicate contraction. Manufacturing grew in October for only the second time since May. The Institute for Supply Management is a trade group of purchasing managers.

A gauge of new orders dropped to its lowest level since August, a sign that production could slow in the coming months. Manufacturers also sharply reduced their stockpiles, indicating companies expect weaker demand.

“Today’s report suggests that the manufacturing sector is likely to remain a weak point in the recovery for a few months yet,” Jeremy Lawson, an economist at BNP Paribas, said in a note to clients.

The weak manufacturing survey overshadowed other positive economic reports.

Construction spending climbed almost three times more than forecast in October.

The 1.4 percent rise was the biggest since May and followed a 0.5 percent advance in September, the Commerce Department said Monday. The reading exceeded all 45 estimates in a Bloomberg survey of economists, in which the median projection was for a 0.5 percent increase. Home construction jumped to the highest level since November 2008.

Healing in the residential real estate market, aided by rising property values and record-low borrowing costs, is helping to sustain building projects. Still, the “fiscal cliff” of tax increases and spending cuts set to take effect next year, absent a deal negotiated by President Barack Obama and Congressional Republicans, may depress nonresidential work as government and businesses delay construction.

“We’re seeing fairly dramatic improvements in new housing starts and good general housing construction activity over the last several months, and that has really been propelling the overall construction,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Construction - especially residential construction - is in a very sustainable recovery that should last a few years, absent a misstep in Washington.”

The Commerce Department said Hurricane Sandy had “minimal” effect on the October data because it occurred so late in the month.

Construction spending increased 9.3 percent in the 12 months ended in October before adjustments for seasonal variations, Monday’s report showed.

Private construction spending climbed 1.6 percent from the prior month.

Home building outlays increased 3 percent to $294.2 billion. Private nonresidential projects rose by 0.3 percent.

The economy grew from July through September at an annual rate of 2.7 percent, largely because of strong growth in inventories.

A slowdown in global growth has weighed on U.S. manufacturers. New export orders slipped in November for the second straight month.

Information for this article was contributed by Christopher S. Rugaber of The Associated Press and by Michelle Jamrisko, Alex Kowalski and Chris Middleton of Bloomberg News.