Manufacturing and construction spending slump

By Burton Frierson

NEW YORK (Reuters) - U.S. manufacturing slumped to its weakest in nearly five years in February, reinforcing worries the world's largest economy is headed for recession, while a fall U.S. construction spending in January added to the gloom.

The Institute for Supply Management said on Monday its index of national factory activity fell to 48.3 in February from 50.7 in January. It was the weakest reading since April 2003, the month after the start of the Iraq war, and was also below the level of 50 that separates growth from contraction.

Construction spending fell a sharper-than-expected 1.7 percent in January, led by a fall-off in private home building, government data showed in a report that marked a continued decline in the housing market.

Taken together, the reports are likely to heighten fears that the U.S. economy is bound for a recession, if it has not already fallen into one.

"The ISM manufacturing index is now in the no-man's land between weak growth and recession, but the problems elsewhere in the economy point more to the latter," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

After days of troubling economic news, financial markets took Monday's data in their stride, especially since the ISM did not turn out as weak as many had feared.

Stocks were lower but briefly managed to trim their losses after the ISM. The dollar was little changed on the day against the euro.

Government bonds, which usually benefit from weak economic news, were lower, wrong-footed by the slightly higher than expected ISM.