US factory output rises, but construction falls

In this Jan. 25, 2012 photo, Gina John­son per­forms leak tests on hydraulic fit­tings at the Eaton Corp. plant in Berea, Ohio. U.S. fac­to­ries stepped up hir­ing and pro­duc­tion in March, the lat­est evi­dence that man­u­fac­tur­ing is grow­ing at a healthy pace and fuel­ing the recov­ery. (Asso­ci­ated Press File | Mark Duncan)

CHRISTOPHER S. RUGABER

AP Eco­nom­ics Writer

WASHINGTON — U.S. fac­to­ries stepped up hir­ing and pro­duc­tion in March, the lat­est evi­dence that man­u­fac­tur­ing is grow­ing at a healthy pace and fuel­ing the recovery.

But a sep­a­rate report on con­struc­tion spend­ing showed that build­ing activ­ity declined in Feb­ru­ary for the sec­ond straight month, dis­ap­point­ing economists.

The reports show “that the econ­omy is still locked on a very grad­ual heal­ing tra­jec­tory,” said Steven Ric­chi­uto, chief econ­o­mist at Mizuho Securities.

The Insti­tute for Sup­ply Man­age­ment, a trade group of pur­chas­ing man­agers, said Mon­day that its index of man­u­fac­tur­ing activ­ity rose to 53.4 in March. That’s up from 52.4 in the pre­vi­ous month. Read­ings above 50 indi­cate the sec­tor is expanding.

A mea­sure of man­u­fac­tur­ing employ­ment rose to a nine-month high, a sign that fac­to­ries are hir­ing more work­ers. Man­u­fac­tur­ers are already a big source of job gains. They’ve added more than 100,000 jobs in the past three months, about one-seventh of all net gains.

Sep­a­rately, the Com­merce Depart­ment said con­struc­tion spend­ing fell 1.1 per­cent in Feb­ru­ary, after a fall of 0.8 per­cent in the pre­vi­ous month. Spend­ing on home build­ing, office con­struc­tion and gov­ern­ment projects all fell.

The weak report shows that the con­struc­tion indus­try is still strug­gling more than two and a half years after the reces­sion ended.

Stocks rose after the reports were issued. The Dow Jones indus­trial aver­age moved up 64 points in mid­day trad­ing. Broader indexes also rose.

The ISM’s sur­vey found that new orders are increas­ing, but at a slightly slower pace than in Feb­ru­ary. Order back­logs rose at a faster pace. And man­u­fac­tur­ers said their cus­tomers are report­ing low inven­to­ries, which sug­gests they are likely to keep order­ing new goods. All of those indi­ca­tors sug­gest pro­duc­tion should stay healthy in the com­ing months.

An index track­ing export orders dropped sharply, but remained in expan­sion­ary ter­ri­tory. That sug­gests that over­seas demand is eas­ing. And a mea­sure of prices that man­u­fac­tur­ers pay dipped slightly but remained high, point­ing to ris­ing costs for raw mate­ri­als, such as oil, cop­per and plastics.

The sur­vey found that the fac­tory growth was wide­spread. Fif­teen of 18 man­u­fac­tur­ing indus­tries reported expan­sion, includ­ing min­ing, steel and other metal pro­duc­tion, oil and gas, autos and furniture.

Increas­ingly con­fi­dent U.S. con­sumers and busi­nesses are spend­ing more on cars, machin­ery and other goods, push­ing up fac­tory out­put. A gauge of pro­duc­tion rose to its high­est level in three months in March.

Con­sumers increased their spend­ing in Feb­ru­ary by the most in seven months, the gov­ern­ment said Fri­day. That is rais­ing expec­ta­tions the econ­omy will grow a bit faster in the cur­rent quarter.

Con­sumer spend­ing on long-lasting goods, such as cars and com­put­ers, rose 1.6 per­cent in Feb­ru­ary. That sug­gests man­u­fac­tur­ers will have to increase out­put to meet higher demand.

Busi­nesses also ordered more durable goods in Feb­ru­ary, after a steep drop the pre­vi­ous month, a sep­a­rate report last week showed. Durable goods are meant to last at least three years. Greater demand for machin­ery, com­put­ers, autos and air­craft drove the increase.

Orders for so-called “core” cap­i­tal goods, a key mea­sure of busi­ness invest­ment plans, also rose. They had fallen in Jan­u­ary by the most in a year, after an invest­ment tax credit expired.

Man­u­fac­tur­ing has been a key source of eco­nomic growth since the reces­sion ended in June 2009. The sec­tor has expanded for 32 straight months, accord­ing to the ISM’s index.

A recov­ery in auto sales has been a big rea­son for the strength in man­u­fac­tur­ing. Amer­i­cans delayed auto pur­chases dur­ing the reces­sion, push­ing the aver­age age of U.S. cars to record highs. That led to sharp increases in car sales as the econ­omy recovered.

More auto man­u­fac­tur­ing boosts out­put in an array of indus­tries, includ­ing steel, tire mak­ers, and other parts suppliers.

Ris­ing fac­tory out­put is help­ing the broader econ­omy grow. Growth increased to a 3 per­cent annual rate in the final three months of last year, up from 1.8 per­cent in the pre­vi­ous quarter.

Many econ­o­mists expect growth will slow in the cur­rent quar­ter because com­pa­nies aren’t likely to restock their shelves as much as they did in the fourth quar­ter. But after Friday’s report on con­sumer spend­ing, some ana­lysts are boost­ing their esti­mates for growth in the January-March quar­ter to 2.5 per­cent, from 2 percent.

Posted by AP News on Apr 2 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.