May 1, 2019 / 2:49 PM / a year ago

WRAPUP 1-U.S. economy appearing to slow; labor market strong

* Private payrolls increase 275,000 in April

* ISM manufacturing index falls 2.5 pts to 52.8 in April

* Construction spending drops 0.9 percent in March

By Lucia Mutikani

WASHINGTON, May 1 (Reuters) - U.S. manufacturing activity slowed more than expected in April amid a sharp drop in orders and construction spending fell in March, suggesting a moderation in economic growth.

While other data on Wednesday showed private employers hired the most workers in nine month in April, the surge in job growth was likely driven by technical factors. The mixed reports came as Federal Reserve officials were wrapping up a two-day meeting.

The Fed in March suspended a three-year policy tightening campaign. With the economy appearing to slow and inflation muted, the U.S. central bank is expected to reaffirm its decision to halt further interest rate increases this year. The Fed raised borrowing costs four times in 2018.

The Institute for Supply Management said its index of national factory activity fell to a reading of 52.8 in April from 55.3 in March. A reading above 50 indicates growth in the manufacturing sector, which accounts for about 12 percent of the U.S. economy.

The ISM's new orders sub-index dropped 5.7 points to a reading of 51.7 last month. A measure of export orders also fell and factories reported a decline in hiring, with a measure of manufacturing employment falling to 52.4 from 57.5 in March.

That suggests manufacturing payrolls remained weak in April after they dropped in March for the first time since July 2017.

Separately on Wednesday, the ADP National Employment Report showed private payrolls increased by 275,000 jobs in April, the biggest rise since July 2018 and exceeding economists' expectations for a gain of 180,000 jobs. That followed 151,000 positions created in March.

The ADP figures came ahead of the Labor Department's more comprehensive employment report on Friday, which includes both public-and private-sector employment.

The ADP report, which is jointly developed with Moody's Analytics, has a poor record predicting the private payrolls component of the government's employment report. Moody's Analytics said the private job count in April was likely overstated by technical factors.

Economists polled by Reuters are looking for private payroll employment to have grown by 180,000 jobs in April, slightly down from 182,000 the month before. Total nonfarm employment is expected to have increased by 185,000 jobs after rising by 196,000 in March.

Job growth has slowed from last year's 223,000 monthly average pace as workers become more scarce. The pace of job gains, however, remains above the roughly 100,000 per month needed to keep up with growth in the working age population.

The unemployment rate is forecast unchanged at 3.8 percent in April. The dollar was trading lower against a basket of currencies, while Treasury prices rose.


In a third report, the Commerce Department said construction spending decreased 0.9 percent. Data for February was revised to show construction outlays rising 0.7 instead of increasing 1.0 percent as previously reported.

Construction spending data for January was also revised lower to account for additional projects identified as eligible for inclusion in the series.

Economists polled by Reuters had forecast construction spending edging up 0.1 percent in March. Construction spending dropped 0.8 percent on a year-on-year basis in March.

March's weak construction spending as well as downward revisions to January and February outlays suggest the government's initial estimate of first-quarter gross domestic product published last week could be revised lower.

Increased state and local government spending on roads and highways helped to lift GDP growth to a 3.2 percent annualized rate in the first quarter, according to the advance estimate. The economy grew at a 2.2 percent pace in the October-December period.

In March, investment in public construction projects fell 1.3 percent after rising 3.2 percent in the prior month. Spending on state and local government construction projects dropped 1.1 percent after advancing 3.4 percent in February.

Outlays on federal government construction projects tumbled 2.7 percent after increasing 1.4 percent in February.

Spending on private construction projects dropped 0.7 percent in March to the lowest level since August 2017, after slipping 0.2 percent in the prior month. Private construction outlays have now declined for three straight months.

Investment in private residential projects plunged 1.8 percent to the lowest level since December 2016, after falling 0.4 percent in February. The housing market has struggled, with spending on homebuilding contracting for five straight quarters.

Spending on private nonresidential structures, which includes manufacturing and power plants, rose 0.5 percent in March after climbing 0.1 percent in February.

Reporting By Lucia Mutikani; Editing by Andrea Ricci

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