US factories likely grew at a slower pace in May

WASHINGTON (AP) -- U.S. manufacturing activity likely stayed weak in May, held back by slower growth overseas.

Economists forecast that the Institute for Supply Management's manufacturing index fell to 50.3 from 50.7 in April, according to FactSet. That would be the third straight decline. Readings above 50 indicate expansion.

The ISM, a trade group of purchasing managers, will release the report at 10 a.m. EDT Monday.

In April, a measure of employment fell sharply, pushing down the broader index. But new orders and order backlogs rose, a positive sign for May's report. Export orders grew in April, but at a slower pace.

Manufacturing has struggled this year as weak economies overseas have slowed U.S. exports and U.S. businesses have reduced their pace of investment in equipment and computer software. At the same time, consumers haven't increased their spending on factory-made goods, possibly a reflection of higher Social Security taxes that have reduced paychecks this year.

Europe remains mired in recession and is buying fewer U.S. goods. In the first three months of the year, exports to Europe fell 8 percent compared with the same period a year ago.

The auto industry, which has been one of the stronger parts of the economy, also had a weaker month in April. Sales in the U.S. dipped in April from March, which may have led to cutbacks in production. Overall sales grew 8.5 percent to nearly 1.3 million. While that's the industry's best April total since 2007, the pace slowed from the first three months of this year.

On an annualized basis, April sales were 14.9 million, the first month below 15 million since October.

Automakers are expected to report Monday that sales improved in May. Analysts forecast sales will rise 7 percent from May 2012 to 1.4 million vehicles, putting the industry back on pace for full-year sales of more than 15 million.

Regional manufacturing reports have presented a mixed picture. Surveys by the Federal Reserve Banks of New York and Philadelphia both showed that factory activity shrank in those regions in May.

By contrast, a Chicago purchasing managers' survey soared nearly 10 points to 59.7 as production and employment jumped. Economists view the Chicago survey as a better predictor of the ISM than the Fed's regional indexes.

In another positive sign, companies stepped up their orders for machinery, electronic products and other equipment that reflect their investment plans. Overall orders for so-called durable goods jumped 3.3 percent in April from the previous month. That reversed a steep fall in March.

Much of the gain in April reflected more orders for commercial aircraft. But excluding the volatile transportation sector, which includes aircraft and autos, orders rose 1.3 percent in April, a big turnaround after a 1.7 percent decline in March.