Construction edges up modestly in October
WASHINGTON (AP) – Construction spending edged up modestly in October, led by a surge in school construction, but a principal indicator of health at U.S. factories showed that manufacturing shrank for a third straight month. Analysts said Monday’s reports, which followed a surprisingly strong start to the holiday shopping season, depicted an economic recovery that appears to be slowing but not stalling.
The Institute for Supply Management said its closely watched index of manufacturing activity edged up to 49.2 in November from 48.5 in October.
But the advance was smaller than expected and left the index below 50, which indicates manufacturing is contracting. The manufacturing index has been in the recession zone for three consecutive months.
U.S. factories have suffered the most from last year’s recession, as more than 2 million factory jobs have been lost over the past two years. A new wave of layoffs was announced this fall as companies trying to keep their stock prices from further deterioration pared their payrolls.
But the Commerce Department reported that construction spending rose by 0.3 percent in October, the gain reflecting strength in school construction and single-family homes. Home sales have been red-hot all year spurred by the lowest mortgage rates since the mid-1960s.
Analysts said the contrast between a struggling manufacturing sector and strength in consumer spending and construction showed the crosscurrents buffeting the economy.
“Once again the consumer is doing his job, but it is still the business sector having problems,” said David Wyss, chief economist at Standard & Poor’s in New York.
Wall Street soared in early trading as investors were cheered by the strong start to holiday shopping. The Dow Jones industrial average climbed above 9,000 for the first time this summer.
The disappointing manufacturing report spurred a sell-off, however, and the Dow finished the day down 33.52 at 8,862.57.
“All is yet to be right in the manufacturing heartland,” said Joel Naroff, head of a Holland, Pa., forecasting firm.
While Wal-Mart, the nation’s largest retailer, and J.C. Penney reported record sales on the Friday after Thanksgiving, analysts cautioned that the strong start was in part a reflection that the Thanksgiving-to-Christmas shopping season this year will have six fewer days than last year.
“The early sales numbers show more of the same pattern – discounters are doing well, while non-discounters are not doing so well,” Wyss said. “People are shopping, but they are very price-conscious.”
Gerald Cohen, senior economist at Merrill-Lynch in New York, said he believed consumer demand, which accounts for two-thirds of the nation’s economic activity, would hold up enough to allow the economy to grow at a 1.5 percent rate in the final three months of the year. That would be far below the third-quarter growth rate of 4 percent but would not constitute the double-dip recession some have feared.
The Commerce Department’s report on construction activity showed a rise to a seasonally adjusted annual rate of $834.6 billion in October compared with $832.5 billion in September. The increases followed a 1 percent decline in August.
October’s gain in construction was led by a 1 percent rise in spending for nonresidential buildings, which rose to an annual rate of $158.3 billion for the month. This increase came after five consecutive monthly declines, as uncertain prospects have kept businesses from making new capital investments.
Sectors that cover factories and office buildings remained down in October.
But this was offset by increases in other areas including a 10 percent jump in spending on educational buildings and a 2.2 percent rise in spending on hospital construction. Spending for construction of homes and apartments was up slightly, to $412.3 billion.
in October, only a 0.05 percent rise from September’s level of $412.1 billion. However, spending for single-family homes posted a much-stronger 1 percent advance, offsetting weakness in apartment building.
Residential construction has been among the leading bright spots in the uncertain economic recovery as the lowest mortgage rates in a generation spurred record home sales.
Government spending dropped by 0.3 percent in October to an annual rate of $205.4 billion, following a 1.6 percent surge in September.
The weakness was led by 3.8 percent decline in highway construction, one of the biggest categories in the government sector.
President Bush signed a bill last week that will reimburse the insurance industry by up to $100 billion in any future massive terror attack, which the president claimed was critical to unblock a logjam in the construction industry and help boost prospects for stronger economic recovery.
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On the Net: Institute for Supply Management: http://www.ism.ws/
Commerce Department: http://www.commerce.gov/