NEW YORK (Reuters) - U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in years, suggesting the economy had lost steam at the start of 2014.
The economic picture was also darkened by other data on Monday showing spending on construction projects barely rose in December.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, its lowest level since May 2013, from a recently revised 56.5 in December.
"This offers a sobering glimpse on the weakening in growth in recent months, confirming the souring tone in other important economic indicators," said Millan Mulraine, deputy chief economist at TD Securities in New York.
U.S. stocks extended losses on the data, while prices for U.S. Treasury debt rose. The dollar fell against a basket of currencies.
January's ISM figure was also well below the median forecast of 56 in a Reuters poll of economists, missing even the lowest estimate of 54.2. Readings above 50 indicate expansion.
But some of the weakness could be weather-related.
"Nevertheless, to the extent that much of this weakening in growth momentum has been due to the cold weather conditions nationally, we expect this slowdown to prove temporary and look for a meaningful rebound in activity in the coming months as the weather-effects dissipate," Mulraine added.
The January reading, which marked a second straight month of slowing growth from November's recent peak reading of 57, which had been the highest since April 2011, indicated manufacturing was cooling off from its strong growth in the fourth quarter.
The biggest red flag in the ISM report was the huge drop in the forward-looking new orders index, which fell to 51.2 from 64.4 in December. That 13.2-point drop was the largest monthly decline in the key component since December 1980.
Indicators of employment, production and inventory growth also declined from December. At 52.3, the employment reading was the weakest since June and well below December's 18-month high of 55.8.
In a separate report, the Commerce Department said construction spending rose 0.1 percent in December after advancing 0.8 percent the prior month.
While private construction spending increased 1.0 percent to a five year high, outlays on public construction projects tumbled 2.3 percent. That was the biggest drop in a year and reflected the drag from weak state and local government spending.
The government's advance fourth-quarter gross domestic product last week showed residential investment falling for the first time in three years and spending on non-residential structures falling for the first time since the first quarter of last year.(Reporting by Lucia Mutikani and Dan Burns; Editing by Paul Simao)