Manufacturing is down; prices are up

Manufacturing in the United States shrank for a third month, and rising prices eroded consumers' buying power, according to reports issued yesterday.

The factory index, compiled by the Institute for Supply Management, was unchanged at 48.6 in April.

Meanwhile, the Commerce Department said consumer spending rose 0.4 percent in March. Stripping out the effect of inflation, purchases were up 0.1 percent after stagnating the previous month.

The ISM report indicated no sign of improvement from the first quarter, when only a jump in inventories prevented the economy from shrinking. Consumers and manufacturers are struggling with rising prices and the worst housing slump in a quarter century.

In addition, Labor Department figures showed a jump in unemployment claims.

Yesterday's reports also showed that the Federal Reserve's preferred measure of consumer prices rose more than anticipated and that manufacturers are paying the most for goods in four years. Fed policymakers signaled Wednesday that they are ready to pause their series of interest-rate cuts as some former officials warn about stoking price pressures.

The ISM figure was higher than economists had forecast as exports continued to prevent a deeper decline in manufacturing.

The Labor Department reported separately yesterday that first-time claims for unemployment insurance rose more than forecast last week, to 380,000.

"Consumers are struggling," said Ryan Sweet, an economist at Moody's Economy.com in West Chester. "Their finances are being squeezed on two fronts. They're getting pressure from higher energy prices and slower income and job growth."

The Commerce Department also reported yesterday that spending on U.S. construction projects fell 1.1 percent in March as home building posted the biggest one-month drop on record.

The consumer-spending measure, which strips out volatile food and fuel prices, increased 0.2 percent after a 0.1 percent gain the previous month. It rose 2.1 percent from March 2007, compared with a median estimate of 2 percent.