WASHINGTON (AP) -- U.S. manufacturing activity contracted at a slower-than-expected pace in April, raising hopes that a steep plunge that began last fall may be moderating. The performance was driven by a rise in new orders reflecting higher business and consumer spending.
The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index rose to 40.1 in April from 36.3 in March. A reading below 50 indicates a contraction. Wall Street economists had expected the index to rise to 38 in April, according to survey by Thomson Reuters.
As new orders rose sharply, company inventories shrank for a 36th straight month -- suggesting that future production will need to ramp up and eventually help stimulate the economy.
More orders signal that higher consumer spending -- which accounts for about 70 percent of economic activity -- is causing businesses to boost demand. Such spending is crucial to an economic recovery.
"Manufacturing remained in intensive care in April, but the pain has begun to ease," said Joel Naroff, chief economist at Naroff Economic Advisers. "Though the reading is well below the magical 50 level which points to growth, it is the highest mark since September 2008, which is when the sky fell in."
The index, based on a survey of members of the Tempe, Ariz.-based group, had fallen steadily as the economy deteriorated late last year, hitting a 28-year low in December. The index covers indicators such as new orders, production, employment, inventories, prices, and export and import orders.
In a separate report, though, the Commerce Department said factory orders fell 0.9 percent in March, worse than the 0.6 percent drop that economists had been expecting. Many companies have been battered by the prolonged recession in the United States and by spreading weakness overseas that has sharply reduced their foreign sales.
For March, orders for durable goods dropped 0.8 percent as strength in demand for commercial jetliners and military aircraft offset weakness in other areas. Orders for nondurable goods, products such as petroleum, chemicals and paper, dropped 1 percent after a 0.2 percent fall in February.
Ford Motor Co., meanwhile, grabbed a bigger slice of the U.S. car market in April, even as its overall sales dropped 32 percent. Ford said sales of light trucks and vehicles fell 32 percent compared with sales in April 2008.
On Wall Street, investors wavered on the first trading day of May with the Dow Jones industrial average up slightly in afternoon trading.
The ISM report for April showed that manufacturing inventories contracted for the 36th straight month, though at a slower pace than before. Smaller inventories are an important signpost because they indicate that companies will eventually need to restock goods and boost production to meet new orders. That would help revive the economy.
The new-orders index reached 47.2, up 6 percentage points from March.
"The decline in the manufacturing sector continues to moderate," said Norbert J. Ore, chairman of ISM's manufacturing business survey committee. "While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again."
The government reported Wednesday that the overall economy, as measured by the gross domestic product, contracted at an annual rate of 6.1 percent in the first quarter following a 6.3 percent plunge in the fourth quarter of last year. That was the sharpest GDP setback over consecutive quarters in more than a half-century.
Auto companies have been particularly hammered. Chrysler LLC filed for bankruptcy protection Thursday, announcing that it would temporarily halt most of its vehicle production while completing a deal with Italian carmaker Fiat.
Other manufacturing companies also are enduring hard times.
Dow Chemical, based in Midland, Mich., on Thursday reported a 97 percent drop in its first-quarter profit as its big commercial customers cut back on purchases, though the results beat Wall Street's expectations. Because Dow's chemicals are used in everything from toys to automobiles, the global economic downturn has hit the company especially hard.
Consumer goods manufacturer Colgate-Palmolive Co. said this week that higher prices and cost-cutting helped its first-quarter profit jump 9 percent despite being buffeted by a stronger dollar and a drop in European sales.
Daniel Lovering reported from Pittsburgh.