Manufacturing activity expands in June

NEW YORK - The nation's manufacturing sector expanded in June, but at a slower pace than analysts expected. Raw materials prices eased a bit.

The Institute for Supply Management, a trade group based in Tempe, Ariz., said Monday that its manufacturing index registered 53.8 in June, slightly below the 54.4 reading in May. It was the slowest growth reading since the gauge registered 53.5 last August.

Analysts had forecast a June index of 55 to 56.

A reading of 50 or more indicates expansion, while below 50 indicates contraction. The May figure represented the 37th consecutive month of growth.

The index is watched closely because it is among the first measures of the previous month's economic activity.

The results reinforced the belief of many experts that the U.S. economy has begun to slow as higher interest rates have reduced demand for housing while rising fuel prices have put a crimp in consumer spending. As a result, analysts expect that the Federal Reserve, which last Thursday raised short-term rates for the 17th consecutive time, may soon be able to take a pause.

''If other June data also paint a picture of moderation ... ahead of the August Federal Open Market Committee meeting, the Fed May want to pause to see whether the slowdown is temporary or not,'' Bear Stearns economist John Ryding said in a research note. ''However, inflation readings remain elevated and we still see the Fed raising the funds rate to 5.5 percent at some point in the third quarter.''

The funds rate, which is the interest banks charge each other on overnight loans, currently stands at 5.25 percent.

Thomas J. Duesterberg, president and chief executive officer of the Manufacturers Alliance-MAPI in Arlington, Va., said June's reading was ''consistent with a slowdown in manufacturing this year.''

He said that strong growth in 2005 and early 2006 ''probably wasn't sustainable'' and that slower growth ''would be in line with our projections.''

Share prices were up in light trading on Wall Street ahead of the July 4 holiday. In morning trading, the Dow Jones industrial average advanced 46.19, or 0.4 percent, to 11,196.41. The Standard & Poor's 500 rose 6.02, or 0.5 percent, to 1,276.22 while the Nasdaq composite index increased 8.42, or 0.4 percent, to 2,180.51.

In Washington, the Commerce Department reported Monday that construction spending fell in May by the largest amount in nearly two years as the once-booming housing sector suffered another big decline.

The report said that building activity dropped by 0.4 percent in May to a seasonally adjusted annual rate of $1.206 trillion following a 0.2 percent fall in April. It marked the first time in more than three years that construction spending had fallen for two consecutive months.