The Institute for Supply Management, a trade group of purchasing managers, said on Monday that its index of manufacturing conditions fell to a reading of 49.5. That is down from 51.7 in October.

Readings above 50 in the institute’s survey signal growth, while readings below indicate contraction. Manufacturing grew in October for only the second time since May.

A gauge of new orders dropped to its lowest level since August, a sign that production could slow in the coming months. Manufacturers also sharply reduced their stockpiles, indicating companies expect weaker demand.

“Today’s report suggests that the manufacturing sector is likely to remain a weak point in the recovery for a few months yet,” Jeremy Lawson, an economist at BNP Paribas, said in a note to clients.

The weak manufacturing survey overshadowed other positive economic reports. An uptick in home building increased construction spending in October by the most in five months. Manufacturing activity in China grew in November for the second consecutive month. And American auto sales rebounded last month after Hurricane Sandy held sales back in October.

American manufacturers are concerned about what happens when trillions of dollars in tax increases and automatic spending cuts take effect in January if Congress and the Obama administration fail to strike a budget deal before then.

Those worries have led many companies to pull back this year on purchases of machinery and equipment, which signal investment plans. The decline could slow economic growth and hold back hiring in the October to December quarter.

A measure of hiring in the I.S.M. survey fell to 48.4, the lowest reading since September 2009.

Companies “are just backing off and not making any moves until things clear up a bit,” said Bradley Holcomb, chairman of the I.S.M.’s survey committee.

The American economy expanded from July through September at an annual rate of 2.7 percent, largely because of strong growth in inventories.

Separately, the Commerce Department said Monday that construction spending rose 1.4 percent in October, for its largest gain since a 1.7 percent increase in May.

The increase raised spending to a seasonally adjusted annual rate of $872.1 billion. That is nearly 17 percent higher than a 12-year low hit in February 2011. Still, even with the gain, the level of spending on construction remains only about half of what’s considered healthy.

Housing construction spending jumped 3 percent in October. Nonresidential building rose 0.3 percent. The government said Hurricane Sandy, which hit New Jersey, New York and Connecticut in late October, had only a minimal effect on the figures.

Sales of new homes fell slightly in October, dragged lower by steep declines in the Northeast partly related to Hurricane Sandy. New-home sales were still 17 percent higher in October than a year earlier.

Article source: http://www.nytimes.com/2012/12/04/business/economy/pullback-in-manufacturing.html?partner=rss&emc=rss