Key Indexes Signal More Uncertainty

WASHINGTON — An unexpectedly strong rise in manufacturing activity during May, reported Monday by national purchasing managers, raised doubts that the economy has been slowing as much as had been thought.

Stock and bond markets experienced some weakening after the National Assn. of Purchasing Management reported that its index, which measures the pace of manufacturing, jumped to 57.1% last month from 54.2% in April.

Any reading over 50% suggests an expanding manufacturing sector.

News of the apparent pickup in manufacturing overshadowed two government reports that pointed to a second-quarter slowing in national economic activity--a hoped-for development that analysts said is needed to ward off any interest rate increases.

The Commerce Department said consumer spending edged up 0.1% in April--the smallest increase since an identical 0.1% gain last September--and that personal incomes advanced just 0.1%.

That pulls some buying punch out of markets, since consumer spending fuels about two-thirds of national economic activity.

In a separate report, the Commerce Department said spending on new construction projects dropped 1% in April to a seasonally adjusted annual rate of $596.9 billion. It is the first monthly decline since December.

But some economists focused on the report of rising manufacturing activity, worrying that it might portend a summer rebound rather than a continued slowdown from the soaring 5.8% annual rate of the first quarter.

Bond prices fell after the stronger-than-expected NAPM index was published, giving back their early gains.

Weaker growth is considered vital to persuade Federal Reserve Board policymakers not to raise interest rates in coming months. Higher interest rates slow the economy by increasing the cost of credit.

“The overall picture in May . . . as indicated by an increase in the growth rates of new orders, backlog of orders and a continued reduction in prices is one of continued growth in manufacturing activity,” said Norbert Ore, chairman of the NAPM’s Business Survey Committee and director of purchasing at Sonoco Products Co.

Economist David Jones at Aubrey G. Lanston & Co. in New York said the bounce upward in orders may be telling, as may be a lengthening in supplier delivery times. Both would indicate that factories were busy.

Jones said the implications may be that “we only saw a pause in the economy in the March-April period and will certainly see a rebound in output and, therefore, in employment and incomes in the months ahead.”