US manufacturing activity shrinks

Fears are growing that the US economy is heading for a recession

Gloomy reports on US construction and manufacturing have underlined the weakness of the US economy.

The Commerce Department said that construction spending fell 1.7% in January, the biggest fall in 14 years.

Spending on homebuilding has been slashed, but the report also showed that there were cutbacks on commercial projects such as hotels and highways.

Separately a report from the Institute for Supply Management (ISM) showed that factory activity shrank in February.

Recession worries

Its index for national factory activity fell to 48.3 in February from 50.7 in January. A reading below 50 indicates that the manufacturing sector is contracting.

It was the weakest report since April 2003 and will raise fears that the US economy is heading towards a recession.

"The market is realizing that the economy has been in a recession for the past couple of months and will continue to be so until the fall," said Thomas di Galoma at Jefferies & Co.

"What's happening in corporate America is bleeding into the broader economy," he added.

But other economists said the findings could have been worse.

"The (ISM) report was bad, but not as bad as expected. People thought we were going to go off a cliff, especially after last week's reports, " said Doug Roberts, chief investment strategist at Channel Capital Research.