U.S. manufacturing contracts for first time in three years

Manufacturing in the U.S. unexpectedly shrank in June for the first time in almost three years, indicating a mainstay of the expansion may be faltering.

The Institute for Supply Management’s index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona-based group’s report showed today. Figures less than 50 signal contraction. Measures of orders, production and export demand dropped to three-year lows.

Assembly lines may be slowing as consumers temper purchases of vehicles and other goods and companies limit investments in new equipment. At the same time, export markets for manufacturers like DuPont Co. and Steelcase Inc. are finding it more difficult as Europe struggles with a debt crisis and Asian economies including China weaken.

“Manufacturing is gearing down,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, whose 50.5 forecast was the lowest in the Bloomberg survey. “It’s consistent with the idea that the uncertainty is weighing on businesses. Europe is taking a bite out of the export sector.”

Stocks fell, following the biggest June rally since 1999 from the Standard & Poor’s 500 Index, and the ISM index dropped to the lowest level since July 2009. The S&P 500 declined 0.2 percent to 1,359.79 at 10:55 a.m. in New York.

Bloomberg Survey

The median forecast in the Bloomberg survey called for a decline to 52. Estimates of 70 economists ranged from 50.5 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 the prior year.

While an index below 50 indicates contraction in the industry, a reading greater than 42.6 generally indicates the economy as a whole is expanding, according to ISM.

Manufacturing is weaker in the rest of the world. The industry in the euro-area contracted for an 11th straight month in June as Europe’s debt crisis sapped demand. A measure of the region’s factories held at 45.1, London-based Markit Economics said.

Euro-area unemployment reached the highest on record in May, other figures showed. The jobless rate in the 17-nation area rose to 11.1 percent, the highest since the data series began in 1995, from 11 percent a month earlier, the European Union’s statistics office in Luxembourg said.

A manufacturing purchasing managers’ index for China fell to 48.2 in June from 48.4 a month earlier, HSBC Holdings Plc and Markit said today.

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