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Manufacturing Grows at a Faster Rate
By ADAM GELLER, AP Business Writer
Fri Jul 1,12:53 PM ET
NEW YORK - Activity in the nation's factories increased at a faster pace in June, a private research group said Friday, in a fresh signal that the nation's economy continues to expand.
A second report showed construction spending declined for a third straight month in May, but still remains close to its all-time high.
The pickup in manufacturing marked the sector's 25th consecutive month of expansion, according to figures from the Institute for Supply Management. The June upturn follows six consecutive months of slowing growth, the group said.
ISM's manufacturing index registered 53.8 percent in June, up from a reading of 51.4 in May. The new reading was notably higher than the 51.5 figure forecast by analysts.
A reading of 50 or above in the index means the manufacturing sector is expanding. A figure below 50 represents a contraction.
Analysts said the new report offered largely positive news for manufacturing, pointing to a sector that is settling into more normal, sustained expansion.
The ISM reading is "a real good number," said Joel Naroff of Naroff Economic Advisors in Holland, Pa. "What we saw in the first few months of this year was manufacturing was leveling off. It wasn't slowing. It was leveling off. I think this report says it's still in very good shape."
Economists downplayed any contradiction between the manufacturing and construction reports, noting that the latter reflects continued robust activity in new home building.
Adding to that generally upbeat economic snapshot, a fresh reading of consumer confidence Friday by the University of Michigan reportedly rose, according to Dow Jones Newswires. The data, which is only released to subscribers, was said to show a rise in the index to 96.0 from 94.8 at mid-month.
Stocks were mixed following release of the reports. In early afternoon trading, the Dow Jones industrial average rose 32.53, or 0.3 percent, to 10,307.50. The Nasdaq composite index declined 0.73, or 0.04 percent, to 2,056.23. The Standard & Poor's 500 index gained 2.28, or 0.2 percent, to 1,193.61.
In the construction report, the Commerce Department said spending on building fell by 0.9 percent in May, the third consecutive monthly decline.
The drop to a seasonally adjusted annual total of $1.1 trillion surprised economists, who had been forecasting a 0.5 percent increase in spending.
The new report takes a bit of the luster off a construction sector that had been consistently robust. Gains in the previous two months were revised to show declines of 1.1 percent in April and 0.2 percent in March. That was the first time since mid-2002 that construction had fallen for three straight months.
But construction activity remained close to its all-time high of $1.13 trillion at an annual rate, reached in February. Analysts expect building will continue to supply strength to the economy this year provided interest rates do not rise too quickly.
Private construction dropped by 1.6 percent to an annual rate of $856.2 billion after declines of 1.5 percent in April and 0.5 percent in March.
The closely watched figures tracking housing activity dropped by 1.7 percent in May to an annual rate of $614.3 billion following declines of 2.2 percent in April and 1 percent in March.
But those figures were skewed because they now include spending on home improvements, said Gina Martin, financial economist with Wachovia Corp. Such spending is unpredictable, and when it is removed from the equation, spending on new homebuilding has continued to rise, she noted.
Nonresidential construction was down 1.6 percent to $241.9 billion in May with weakness in office construction, commercial, a category that includes shopping centers, and factory construction.
Government building projects rose by 1.7 percent to an annual rate of $246.8 billion, an all-time high. State and local building was up 1.7 percent while federal building projects rose by 0.7 percent.
Meanwhile, the report from the Institute for Supply Management indicated a 44th consecutive month of expansion in the overall economy.
"These are the most positive signs that we have seen in several months, and they indicate that we may be through the 'soft patch' that many observers touted," said Norbert J. Ore, chair of ISM's manufacturing business survey committee.
The reading reflects an increased rate of growth in new orders, and a slowing rise in prices paid by manufacturers for raw materials. At the same time, high energy costs and a strong dollar continue to weigh on the sector, Tempe, Ariz.-based ISM said.
Analysts said the report was generally positive, but prompted limited concerns. It shows exports by U.S. manufacturers are growing more slowly, a potential problem with the dollar strengthening. Employment growth in manufacturing is also flat, the report said.
Of the 20 industry sectors tracked by the group's survey, 13 reported growth in June, including petroleum, textiles, food, wood and wood products, furniture, instruments and photographic equipment, industrial and commercial equipment and computers, rubber and plastic products, chemicals, electronic components and equipment, printing and publishing and primary metals.
A sub-index tracking new orders rose to 57.2 percent from 51.7 percent in May. A sub-index measuring production also increased, reflecting faster growth.
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