(Recasts, updates yields, adds analyst quote)
By Kate Duguid
NEW YORK, Nov 1 (Reuters) - Yields on Treasury bonds fell on Thursday after data showed a slowdown in U.S. manufacturing, construction and productivity.
The Institute for Supply Management (ISM) said its index of national factory activity fell to a six-month low of 57.7 points last month from 59.8 in September. A reading above 50 indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.
Treasury yields typically fall on expectations of lower economic growth.
The Markit U.S. Manufacturing PMI was revised marginally downward for October to 55.7 from a preliminary reading of 55.9.
The Commerce Department reported that construction spending was unchanged at a record high in September as continued gains in private construction projects was offset by the biggest drop in public outlays in a year.
“The data continues to be relatively good in the United States - we see a bit of slowing momentum - but it’s still coming from a good place,” said Bill Merz, head of fixed income research at U.S. Bank.
“This is consistent with our perception that the numbers in the U.S. still look good but the momentum looks to be slowing.”
Also contributing to lower yields was a Labor Department report that showed productivity growth slowed in the third quarter though the figure was slightly above expectations.
Nonfarm productivity, which measures hourly output per worker, increased at a 2.2 percent annualized rate in the last quarter, slower than the 3.0 percent growth in the second quarter. The previous quarter’s number was the strongest since the first quarter of 2015.
The fall in yields, however, was somewhat tempered by reports of U.S. labor market tightening. Yields across maturities were down 1 to 2 basis points, with the yield on the 10-year benchmark note last down 1 basis point.
Yields initially rose modestly on Thursday morning after a report that unit labor costs rebounded in the third quarter after dropping the most in nearly four years in the prior period.
The Labor Department said on Thursday that unit labor costs, the price of labor per single unit of output, rebounded at a 1.2 percent pace in the third quarter. Unit labor costs in the April-June period declined at a 1.0 percent rate, which was the largest drop since the third quarter of 2014. Labor costs increased at a 1.5 percent rate from the third quarter of 2017.
Reporting by Kate Duguid Editing by Susan Thomas