Manufacturing report lifts hope for recovery

Associated Press

Tuesday, January 05, 2010 – http://chronicle.augusta.com/stories/2010/01/05/bus_561950.shtml

An unexpectedly strong report on manufacturing activity Monday bolstered confidence that the nation’s factories will help sustain an economic recovery.

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However, a separate report noted construction spending dropped for a seventh consecutive month.

The manufacturing report by the Institute for Supply Management, a trade group of purchasing executives, signals that industrial production is likely to keep expanding in coming months, economists said. That could lead, in turn, to increased hiring and job creation.

The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 55.9 in December after 53.6 in November. A reading above 50 indicates growth.

It was the fifth straight month of expansion and the highest reading for the index since April 2006.

The report helped boost stock markets on the first trading day of the year. Since 1973, a big advance on the first trading day of January has been a strong sign stocks gain throughout the year.

The ISM survey showed that inventories held by manufacturers’ customers are at their lowest level since the survey began tracking the category in January 1997. That’s another sign of future gains because more sales will have to be filled through new production rather than existing stockpiles.

That could lead to increased hiring as manufacturers ramp up production.

And a turnaround in employment could boost incomes and increase consumer spending, fueling the recovery.

The ISM’s employment index rose last month to 52 from 50.8, the third straight month it has topped 50.

“When orders are increasing and inventories are going down, that could push up one major weak spot: employment,” said Tim Quinlan, an economic analyst at Wells Fargo Securities.

A separate report on construction spending sounded a more cautionary note. Construction activity fell in November for a seventh straight month as spending on both residential and commercial projects declined. The 0.6 percent drop was bigger than the 0.4 percent decline that economists had been expecting.

Increased spending on federal construction projects, likely fueled by stimulus spending, was largely canceled out by lower state and local spending.

Still, the ISM said its index of new orders jumped last month to 65.5 from 60.3 in November, the highest level in five years. That indicates the overall index could near 60 in coming months, economists said.

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