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Economic signs still sluggish

Posted: Wednesday, July 02, 2003

WASHINGTON Spending on construction projects dropped in May by the largest amount in a year and manufacturing was sluggish in June, signs that the economy is still struggling to get back on firm footing.

The value of construction projects under way in May was a seasonally adjusted annual rate of $869.8 billion, representing a 1.7 percent decline from April's level, the Commerce Department reported Tuesday. Although rainy weather in some parts of the country played a role in May's decline, it still marked the third month in a row that construction spending went down.

In another report, the Institute for Supply Management said its manufacturing index rose slightly to 49.8 in June, up from a reading of 49.4 in May.

A reading below 50 means manufacturing activity is slowing; above 50 indicates the industry is growing. The report disappointed economists, who were predicting a stronger reading of 51 for June.

Manufacturing has been the weakest link in the economy's ability to get back to full economic speed. The sector facing lackluster demand at home and abroad as well as competition from a flood of imports has throttled back production and cut jobs.

The latest snapshot of construction activity also was weaker than analysts were expecting. They were forecasting a 0.3 percent increase in construction spending in May.

The weakness was broadbased, with private builders cutting back spending on residential projects as well as commercial ventures, such as office buildings. Government spending on big public works projects declined to it lowest level in nearly a year.

To nudge the lackluster economy, the Federal Reserve cut a key interest rate last week by a quarter percentage point to 1 percent, the lowest level in 45 years. Its hope was that lower borrowing costs would motivate consumers and businesses to spend and invest more, giving a boost to economic growth.

Analysts are hopeful the economy will pick up momentum in the second half of this year as a fresh round of tax cuts and super-low interest rates take hold.

The 1.7 percent drop in construction spending in May matched the decline posted for the same month a year ago. The $869.8 billion pace of construction spending in May marked the lowest level in six months.

The decline in May was led by a 1.8 percent drop in big government projects, where spending fell to a rate of $207.2 billion, the lowest level in 11 months. Government spending on highways and streets went down by 4.5 percent in May, spending on public housing dropped by 3.8 percent and spending on schools dipped by 0.5 percent.

Private builders cut spending on commercial projects by 0.4 percent, pulling down spending to a rate of $157 billion in May.



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