US manufacturing grew at its slowest pace in two years in July as new orders contracted, a troubling development for the faltering economy. The Institute for Supply Management said its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June.
Economists had expected a reading of 54.9. A reading below 50 indicates contraction in manufacturing.
The economy almost ground to a halt in the first half of the year, government data showed on Friday with output expanding at a tepid a 1.3% annual pace in the second quarter after advancing just 0.4% in the prior period.
The ISM report suggested the much anticipated bounce back in growth in the second quarter would probably be feeble.
Manufacturing, which accounts for about 12% of GDP, has shouldered the weak recovery from the recession of 2007-09.
Activity last month was held back by weak new orders, whose index fell to 49.2 from - the lowest in two years, from 51.6 in June. Prices paid index fell to 59 from 68, while the employment index fell to 53.5 from 59.9.
A report from the Commerce Department showed construction spending advanced 0.2% to an annual rate of 772.32 billion, the Commerce Department said. May's construction spending was revised to a 0.3% increase rather than the previously reported 0.6% decline.
Economists had expected construction spending to be flat in June. Overall construction spending fell 4.7% from a year ago.
Private construction spending rose 0.8% to a seven-month high as an increase in non-residential outlays offset a second straight month of declines in spending on residential projects.
Spending on public construction projects dropped 0.7% to 278.91 billion dollars, the lowest level since March 2007. The decline reflected weak spending on federal projects, which dropped 2.2%. State and local government spending fell 0.6% to the lowest level since November 2006.
The Labour Department will release its monthly jobs data on Friday.