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The National Association of Purchasing Management said Tuesday its overall U.S. factory activity index for April was 43.2, up 0.1 from March but still below the key level of 50 to indicate the manufacturing sector was shrinking for the ninth straight month.

In another report, the Commerce Department said March construction spending had posted a larger-than-expected gain, for the fifth monthly increase in a row.

Although the NAPM index rose slightly, it still was below analysts' expectations for a reading of 43.8, Reuters reported.

Bloomberg said analysts believe that flagging confidence levels will limit consumer spending on vehicles and other durable goods. Also, a continuing decline of business investment in digital technology is likely to keep manufacturing indicators down for an extended period.

However, not all the news was bad. The report did show signs that the factory sector may be stabilizing, since the NAPM index rose for the third month in a row.

In addition, manufacturers reduced unsold inventories at their fastest pace since October 1996.

News accounts varied on whether the NAPM report would strengthen the case for the Federal Reserve to aggressively cut U.S. interest rates further, after making four separate half-point cuts so far this year.

Manufacturing accounts for about 20% of the overall economy, has suffered the most from the current economic slowdown, and is still mired in a contraction. However, the fact that the NAPM gauge has risen for three months suggests the worst of the descent is in the past.

The report is one of the first indications of economic activity in the manufacturing sector and is based on NAPM's survey of executives who buy the raw materials and supply for manufacturing at more than 350 industrial firms.

While other parts of the economy have been hurt by the economic slowdown, construction and housing activity have held up well. Lower mortgage rates have helped to keep the market stable, Reuters reported.

This 1.3% gain in construction spending is important to trucking companies because it shows an increase in demand for shipments of building materials, and later appliances and home furnishings.

For March, construction spending was $854.4 billion, a record monthly high. The strength came from commercial building, home improvements and government projects.

In other economic news Tuesday, the U.S. Treasury Department said the economy may by on the mend after growth stalled during the final months of 2000, Bloomberg reported.

It said that during the first quarter of 2001, the economy grew at a faster-than-expected rate of 2%. In addition, there has not been much sign of serious weakness that could drive the economy sharply lower.

However, NAPM’s semi-annual report released on Tuesday said manufacturing executives are more pessimistic about the 12-month outlook for their sector than in nearly four decades, Reuters reported.

In all, 38% of purchasing managers said they are pessimistic over the 12-month outlook, up sharply from 5% in the previous survey taken last December.