The auto sector's continued strength wasn't enough to prevent a surprise retreat in manufacturing, which suffered from federal budget cuts and global economic weakness.
The Institute for Supply Management said Monday its factory gauge fell to a four-year low of 49 in May from 50.7 in April, meaning activity pulled back into contraction from expansion. Analysts expected a slight improvement to 51.
Subindexes on production, orders and backlogs also swung into negative territory. Employment dipped to a near-stagnant reading of 50.1. Export growth slowed significantly.
U.S. stocks generally fell early, but closed higher as Atlanta Fed President Dennis Lockhart said policymakers agree on aggressive monetary easing despite "mixed messages" to investors about when to make a shift.
Rising demand for pickup trucks — fueled by the housing recovery — helped GM (GM) grow May U.S. sales by 3% annually. Ford (F) sold 14% more, and Toyota (TM) added 2.5%.
But other industries were less upbeat. Comments from purchasing managers surveyed by ISM noted government cuts as well as the downturn in Europe and sluggishness in China. Even sectors that should be benefiting from the housing recovery saw sudden downshifts.
"Business continues to increase, but over the past 20 days we have seen the trend flatten," a furniture products manager said.
"Market was holding strong until midmonth — then softened," said one in wood products.
Regional manufacturing gauges have been mixed, though ISM's Midwest business barometer on Friday surged by the most in 30 years to reach the highest level since March 2012. That may have reflected the strength in autos.
Monday's unexpectedly weak data may be exaggerated due to seasonal adjustment issues, said Jonathan Basile, an economist at Credit Suisse, adding that the softness should be temporary.
But businesses have had to deal with uncertainty over how fiscal tightening will affect consumers and may be waiting for more clarity on the economy's direction, he acknowledged. Overseas markets are weighing too.
"Manufacturing is a global industry," he said.
Excluding housing, most industries have yet to demonstrate sustained improvement in growth, said Michael Hanson, an economist at Bank of America Merrill Lynch. Auto sales slipped in April, though May rebounded to a 15.3 million annualized pace, according to Autodata.
"It feels like everyone is pulling back right now," Hanson said. "They're still somewhat skeptical about the broader economic environment.
April construction spending rose 0.4%, but well short of forecasts for a 1% bump. Private nonresidential outlays rose 2.2% vs. March. That offset a 0.1% dip in private residential spending and a 1.2% dive in public spending.
- Investment & Company Information