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 group’s report showed Monday. Figures less than 50 signal contraction. Measures of orders, production, and export demand dropped to three-year lows.
Europe’s debt crisis and a slowdown in Asia are taking a bigger toll on the US economy and hurting manufacturers like DuPont Co. and Steelcase Inc. Assembly lines are at risk of slowing further as consumers temper purchases and companies cut back on investment.
“Manufacturing is gearing down,” said Neil Dutta, head of US 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.”
The ISM index, which dropped to its lowest level since July 2009, was less than the median forecast of 52 in the Bloomberg survey. Estimates of 70 economists ranged from 50.5 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 the prior year.
The reading is well above the 42.6 level that generally indicates the economy as a whole is expanding, according to ISM.
“We are not yet in recession territory,” said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Mass., in an e-mail to clients. “Recessions are usually accompanied by ISM readings in the low-40s. And the construction news is improving, while consumers are being helped by tumbling gasoline prices.”
A separate report from the Commerce Department showed improvement in the housing market helped boost construction spending in May to the highest level in two years. Housing demand has shown a gradual recovery. Purchases of new houses rose 7.6 percent in May to reach the highest level since April 2010.
Manufacturing is also weaker in the rest of the world. The industry in the euro area contracted for an 11th straight month in June. A measure of the region’s factories held at 45.1, according to London-based Markit Economics.
Manufacturing accounts for about 12 percent of the US economy and has been at the forefront of the recovery that began June 2009.
Executives at Wilmington, Del.-based DuPont said that although growth in North America is holding up, the US chemical maker is concerned about the rest of the world.
“My number-one worry is what will happen in Europe over the next six to nine months,” said Diane Gulyas, group vice president of DuPont’s performance-materials segment.