RTTNews - While the Institute for Supply Management released a report on Monday showing that activity in the manufacturing sector contracted for the sixteenth consecutive month in May, the pace of contraction slowed by more than economists had been expecting.

The report showed that the index of activity in the manufacturing sector rose to 42.8 in May from 40.1 in April, with a reading below 50 indicating a contraction. Economists had been expecting the index to edge up to a reading of 42.0.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement.

A turnaround in new orders contributed to the improvement in the sector, with the new orders index climbing to 51.1 in May from 47.2 in April. This marked the first time the index has been above 50 since November of 2007.

New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008, Ore noted.

The report also showed a slowdown in the pace of contraction in production, with the production index rising to 46.0 in May from 40.4 in April.

At the same time, employment in the manufacturing sector saw continued weakness, as the employment index edged down to 34.3 in May from 34.4 in the previous month.

The ISM added that prices continued to decline, although at a much slower rate than in the previous month. The prices paid index jumped to 43.5 in May from 32.0 in April.

In other economic news, the Commerce Department released a report earlier in the day showing that personal income increased by 0.5 percent in April following a revised 0.2 percent decrease in March. The increase surprised economists, who had expected income to fall by 0.2 percent.

Reduced taxes and increased benefit payments associated with President Barack Obama's economic stimulus package contributed to the unexpected increase in income.

At the same time, the Commerce Department said that personal spending edged down 0.1 percent in April after falling by a revised 0.3 percent in the previous month. Economists had expected the drop in personal spending to match the 0.2 percent decrease originally reported for March.

With income rising and spending fall, personal saving as a percentage of disposable personal income was 5.7 percent in April, compared with 4.5 percent in March. With the increase, the personal savings rate rose to its highest level since February of 1995.

The Commerce Department also released a separate report showing that construction spending unexpectedly increased in the month of April, with the unexpected growth reflecting a notable increase in spending on private construction.

The report showed that construction spending increased by 0.8 percent to an annual rate of $968.7 billion in April following a revised 0.4 percent increase in March. Economists had expected spending to decrease by about 0.8 percent.

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