The U.S. manufacturing sector grew in June for an eleventh straight month, but at a slower rate than expected, according to an industry report released Thursday.
June marked the second straight month of slower growth.
The Institute for Supply Management said its index of national factory activity fell to 56.2 in June from 59.7 in May. The median forecast of 72 economists surveyed by Reuters was for a reading of 59.0.
A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.
The report's employment component fell to 57.8 from 59.8. New orders also fell to 58.5, suggesting growth may be moderating.
Companies that slashed spending during the recession need to rebuild inventories and replace old equipment. Consumers began to spend a bit more earlier this year.
Factories boosted production to meet demands of shoppers and businesses, but they are still running with plenty of slack. In April, U.S. factories operated at 74.7 percent of capacity, 5.9 percentage points below a long-term average from records dating back to 1972.
That means factories don't necessarily have to bring on lots of new full-time hires as they need to make more goods, especially given recent gains in productivity.
More than 2 million manufacturing jobs were lost during the recession, according to the Department of Labor. This year, the sector has added back only 126,000 jobs.
While hiring slowly ticks up, the pace of the recovery in the manufacturing sector may be peaking, said analysts with Nomura Economic Research.
The prospect of a slowdown in China as the government cuts back on lending, economic problems in Europe and a strengthening dollar could also weigh on exports of U.S. goods.
A separate report Thursday shows U.S. construction spending slid less than expected in May as declines in private-sector building overshadowed gains in public-funded construction, a government report showed Thursday.
Construction outlays fell 0.2 percent in the month to an annual rate of $841.9 billion, the Commerce Department said. Analysts polled by Reuters were expecting a 0.8 percent drop.
Private residential construction fell 0.4 percent after two months of gains, underscoring the setback to housing markets from the expiration of a popular tax credit.
