NEW YORK (CNN/Money) - Manufacturing grew in the United States in April but at a slower rate than the month before, the nation's purchasing managers said Wednesday, the third straight month of expansion and the latest sign that the broader economy is recovering from its first recession in a decade.

The Institute of Supply Management (ISM) said its key gauge of manufacturing activity fell to 53.9 in April from 55.6 in March. Any reading over 50 indicates expansion, and economists surveyed by Briefing.com expected a reading of 55.

"Though the rate has slowed, a third consecutive month of growth in the manufacturing sector is certainly encouraging," said Norbert Ore, chairman of the ISM's survey committee. "The New Orders Index lost some momentum, but it is still strong enough to drive sector growth in the next several months."

The report from ISM, formerly known as the National Association of Purchasing Management, is watched closely by economists since it offers an early reading on the health of the manufacturing sector each month. ISM members buy materials for manufacturing at more than 350 of the nation's biggest companies.

Separately, the Commerce Department reported that spending on construction dipped 0.9 percent in March to $874 billion after rising 0.7 percent in February. Economists surveyed by Briefing.com expected spending to fall 0.1 percent.

U.S. stock prices fell after the data, while Treasury bond prices rose.

Manufacturing was driven into recession in 2000 primarily by the dramatic slowdown in business spending on new equipment and technology that followed the spending bubble of the late 1990s.

More than a million jobs were cut as a result of that recession, helping to fuel a recession in the broader economy that began in March 2001, according to the National Bureau of Economic Research.

The Federal Reserve cut its target for short-term interest rates 11 times in 2001 to spur the economy, and while the recession is likely over, Fed Chairman Alan Greenspan has said the size and shape of the recovery will depend on a pick-up in business spending.

The ISM's New Orders Index dipped to 59 from 65.3 in March, indicating a slowdown in the pace of spending, though it is still expanding. The Backlog of Orders index also fell, to 56 from 62.5 in March.

"The orders component should jump out and catch your eye," said Anthony Chan, chief economist at Banc One Investment Advisors. "We're still in expansion mode, and recovery is in no jeopardy of derailing, but it's not racing away from us."

Related links       ISM report Construction spending report CNN/Money economic calendar Special Report: Eyes on the Fed

The sluggishness displayed in Wednesday's data and in other recent reports should also keep the Fed, which has left rates alone so far in 2002, from raising interest rates at the next meeting of the central bank's policy-makers on Tuesday.

"The Fed will probably want to see signs of a firmer recovery before they jump the gun," Chan said. "They'll take a pass [at their meetings] in May and in June. They may start the [raising] process after that, but it will be gradual."