May 29 (Bloomberg) -- Natural gas futures declined for the first time in four days on ample supply and slack industrial demand caused by the recession.

Gas inventories last week were 22 percent higher than the five-year average, the Energy Department said yesterday. U.S. business activity contracted at a faster pace than forecast this month as orders and employment dropped, the Institute for Supply Management-Chicago Inc. said today.

“Being here in Michigan we’re not seeing much of an economic rebound,” said Robert Bernardi, president of energy consultant Executive Energy Services LLC in Fair Haven, Michigan. “I see no industrial demand in June and July.”

Natural gas for July delivery slipped 12.2 cents, or 3.1 percent, to settle at $3.835 per million British thermal units at 3:02 p.m. on the New York Mercantile Exchange. Gas rose 14 percent this month, the first increase in 11 months. Prices have declined 32 percent this year.

Baker Hughes Inc. said the number of natural-gas rigs operating in the U.S. fell this week to 703 from 711 last week.

“The reality with natural gas too is that production remains very strong and demand is still lacking,” said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York.

Demand for the fuel has contracted as the U.S. economy slowed. Companies including General Motors Corp. and DuPont Co. slashed production as the economy shrank 6.1 percent in the first quarter and 6.3 percent in the final three months of 2008.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 34.9 from 40.1 in April. Readings below 50 signal a contraction.

Falling Demand

Overall U.S. gas consumption will probably drop 1.9 percent this year, the Energy Department said this month.

“Natural gas is trying to mimic the rally across the board and in commodities in general, but being a domestic market, natural gas isn’t going to tread on the same factors as more of a global commodity marketplace,” Ellis said.

Storage operators and utilities injected 2.178 trillion cubic feet between April and November 2008, according to the Energy Department. A similar rebuilding of inventories this year would put stockpiles near 3.8 trillion cubic feet by Oct. 31, above the current record of 3.545 trillion cubic feet in storage on Nov. 2, 2007.

“Looking forward, our current assumptions regarding fundamentals and current degree-day forecasts would have us expecting stocks to cross the 2.5 trillion-cubic-feet level in mid-June,” Scott Speaker, an analyst at JPMorgan Chase & Co. in New York, said in a note to investors yesterday.

The eastern two-thirds of the U.S. will have normal to below-normal temperatures over the next two weeks, according to the Climate Prediction Center in Camp Springs, Maryland. Mild weather limits demand for electricity from gas-fired power plants to run air conditioners.

“The next couple of weeks it looks like a good part of the United States weather will be below normal,” said Peter Linder, president of DeltaOne Energy Fund in Calgary. “So, limited cooling demand.”

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net; Elizabeth Campbell in New York at ecampbell14@bloomberg.net

Last Updated: May 29, 2009 15:49 EDT