Jun 4, 2002 By Hope Yen Ap Business Writer 3 min read

NEW YORK (AP) – Manufacturing activity grew last month at the fastest pace in more than two years bolstering hopes that recovery in the battered sector is gaining momentum. The Institute for Supply Management said its index of business activity rose to 55.7 percent in May from 53.9 percent in April. An index above 50 signifies growth; analysts had been expecting a reading of 55.0.

Separately, the Commerce Department also reported that construction spending rose in April to a seasonally adjusted annual rate of $871.9 billion, a 0.2 percent increase over March’s level. Much of it came from commercial projects, including office buildings and industrial complexes.

“Manufacturing has bottomed out,” said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. “It’s in the process of becoming one of the economic drivers for moderate economic growth.”

The ISM measure is closely tracked by economists because it offers an early reading on the health of the manufacturing sector. Its index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies.

May’s manufacturing figure caps fourth straight months of growth and is the fastest pace since February 2000, according to the ISM. Eighteen of the 20 industries tracked by the ISM reported overall growth last month.

Contributing to that, economists say, are increases in orders and production as manufacturers begin to rebuild inventories. Manufacturers were the hardest hit by the downturn in the economy, which officially slid into a recession in March 2001.

A weaker dollar also should give manufacturers more pricing power and exports, while employment in the sector appears poised for growth in the coming months, economists said. “These numbers are clearly confirming the notion that the manufacturing sector has turned the corner,” said Anthony Chan, chief economist for Banc One Investment Advisors.

The advance in construction spending matched many analysts’ expectations. It came after a revised 1.2 percent drop in March, which was weaker than previously reported.

Economists largely attributed March’s decline to the return of colder weather in the month. Mild weather helped bolster construction activity in January and February.

Construction and housing activity – aided by low interest rates – remained solid throughout last year’s recession and was one of the economy’s few bright spots during the slump.

Many economists believe the Federal Reserve will keep short-term interest rates at 40-year lows through the summer. That might motivate consumers to continue to spend and businesses to step up investment, which would help along the economic recovery.

In April, spending on commercial projects by private builders rose 1.6 percent, with gains reported for offices, industrial complexes, hospitals and schools. Spending on hotels and motels was flat at a rate of $11.2 billion, the lowest level since July 1996.

In March, spending on all commercial projects by private builders fell 2.7 percent.

Meanwhile, spending on all residential projects rose 0.7 percent in April, on top of a 1 percent advance the month before. Spending on single-family homes was unchanged in April, although the level of spending – at a rate of $260.8 billion – was a record high reached in March. Spending for apartments, condos and other multifamily housing went up 4.1 percent in April, after dipping in March.

For big government projects, spending declined by 1.1 percent in April, with spending lower for hospitals, conservation projects and sewer systems. In March, spending on government buildings fell 4.5 percent.

On Wall Street, stocks were lower in early afternoon trading, with the Dow Jones industrial average falling 80 points to 9,845 and the Nasdaq composite index losing 30 points to 1,584.