US factory orders show slowdown

The US manufacturing sector fears more rate rises in 2006

The US manufacturing sector grew at a slower pace in December than in the previous month on expectations that US interest rates will rise again.

The Institute for Supply Management (ISM) said its manufacturing index stood at 52.2 in December, down from November's 58.1.

Economists had expected a smaller decline to 57.0 in December.

However, both orders and production were at levels that supported economic growth, the survey said.

A reading above 50 indicates economic expansion, while a reading below 50 shows that manufacturing activity is shrinking.

Property slowdown?

Meanwhile, separate figures showed that US construction spending hit an all-time high in November as government spending on building schools, roads and sewerage systems offset a slight dip in private house building.

The US Commerce Department said construction spending rose 0.2% on the month before to $1.146 trillion (£658.8 trillion) - a record, although the gain was smaller than the 0.7% increase expected by economists.

Total spending in the first 11 months of 2005 rose by 9% above the pace set in 2004 thanks to a boom in housing which fuelled construction activity to record levels.

However, home building by the private sector was little changed in November, and experts predict that rising mortgage rates will cool housing activity in 2006.

The Federal Reserve is expected to raise rates at least two more times during this year to keep inflation in check, having already lifted rates from 1% to 4.25% since late 2004.