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Ahead of the Bell: US ISM Manufacturing

WASHINGTON (AP) -- U.S. manufacturing likely grew at a slower pace in April, restrained by government spending cuts and tax increases that have weighed on demand for factory goods.

Economists forecast that the Institute for Supply Management's manufacturing index slipped to 51 from 51.3 in March. Readings above 50 indicate expansion.

The ISM, a trade group of purchasing managers, will release the report at 10 a.m. EDT Wednesday.

Growth in manufacturing slowed sharply in March. The index fell to 51.3 from 54.2, held back by declines in production and new orders.

The drop in factory activity was a sign that companies are starting to worry about across-the-board government spending cuts that began on March 1. Businesses slowed their investment in facilities and equipment in the first quarter. And weaker growth overseas threatens demand for U.S. exports.

Factories may also see slower sales this spring because consumers are starting to feel the impact of higher Social Security taxes. Americans increased their spending from January through March at the fastest pace in more than two years. But spending on goods fell in March, a sign that the tax increase may be catching up with consumers.

Consumers are more optimistic that the job market is healing and will deliver higher pay later this year, according to a survey of April consumer confidence released Tuesday. And lower gas prices could offset some of the pinch from the tax increase.

One area of manufacturing that remains strong is auto production: Strong truck demand in March drove U.S. auto sales to their highest monthly total since August 2007.

Still, factories cut jobs in March after five months of hiring. And manufacturing output declined in March, the Federal Reserve said earlier this month, despite the jump in auto production.

The economy grew at an annual rate of 2.5 percent from January through March, the government said last week. That was an improvement from the anemic growth of 0.4 percent in the final three months of last year. Most economists expect growth will slow in the current quarter and remain subpar for most of the year.