Gloomy US data dash recovery hopes

US industrial output is faltering

Downbeat manufacturing figures have dampened hopes of a quick post-war rebound in the US.

The Institute for Supply Management's monthly manufacturing index - a closely-watched gauge of US industrial activity - slipped to 45.4 in April from 46.2 the previous month.

It was the manufacturing economy's fourth consecutive score below the 50 mark which separates expansion from contraction, and its weakest reading in a year and a half.

The figures confounded analysts' expectations of a moderate rise in manufacturing activity, and poured cold water on hopes that the end of the conflict in Iraq would provide a decisive boost to the economy.

Although the manufacturing sector accounts for just one sixth of US economic activity, it is usually the first to benefit from an upturn in demand, and is therefore seen as a bellwether for the wider economy.

Disappointment

"It's definitely another disappointing report for the manufacturing sector," said Dana Johnson, head of research at Banc One Capital Markets.

"We have two consistent patterns: One is weakness in the labour markets and the other is weakness in the manufacturing sector."

The gloomy manufacturing figures have exacerbated fears that jobs data due out on Friday will reveal an increase in the unemployment rate.

On Wall Street, the Dow Jones index of leading US shares was down 1.2% as traders digested the ISM report.

Analysts said the manufacturing economy's persistent weakness made a further cut in interest rates in the months ahead more likely.

"It will reinforce the idea that a rate cut by the Fed is still on the table if the early promises of improving sentiment don't start to revive demand," said James Glassman, senior economist at J.P. Morgan.