Industry growth weakens in June

NEW YORK -- The nation's manufacturing sector expanded at a slower rate than expected in June and construction spending plunged in May, reinforcing the belief of some analysts that increasing sluggishness in the economy will prompt the Federal Reserve to pause at last in its credit-tightening regime.

The Institute for Supply Management, a trade group based in Tempe, Ariz., said yesterday that its manufacturing index registered 53.8 in June, below May's 54.4 reading. It was the slowest growth reading since the gauge registered 53.5 last August. Analysts had forecast a June index of 55 to 56.

A reading of 50 or more indicates expansion, while below 50 indicates contraction. The May figure represented the 37th consecutive month of growth.

In Washington, meanwhile, the Commerce Department reported that building activity dropped 0.4 percent in May to a seasonally adjusted annual rate of $1.206 trillion following a 0.2 percent decline in April. It marked the first time in more than three years that construction spending had fallen for two consecutive months.

The softness in construction is one of several signals of a slowdown the economy was sending in the spring under the impact of rising gasoline prices, higher interest rates, and a cooling housing market. Analysts said it could get the Fed to think twice before it raises the federal funds rate yet again from its current 5.25 percent.