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Construction Spending Reaches Highest Level Ever in December

Tue February 03, 2004 - National Edition

NEW YORK (AP) The economic recovery is showing new signs of staying power, a trio of reports said Feb. 2, with a pickup at the nation’s factories complemented by robust consumer spending and construction activity.

The Institute for Supply Management said its manufacturing index rose to 63.6 in January from a revised 63.4 in December. The reading signals a recovery that is broadening across manufacturing industries, although it is still not generating many new jobs, analysts said.

The government reported that construction spending in December rose to its highest level ever.

The total value of building projects under way rose 0.4 percent from November to a seasonally adjusted annual rate of $933.2 billion. Residential projects by private builders led the way, with spending on those projects also rising to a record monthly high.

Meanwhile, the ISM report offered upbeat news from a sector that was one of the hardest hit by the recession and one of the last to recover.

“The manufacturing sector gained momentum in January,’” said Norbert J. Ore, chairman of ISM’s manufacturing business survey committee. “Both new orders and production remain quite strong, indicating that the manufacturing sector is experiencing a much-needed recovery.”

An ISM index reading above 50 indicates expansion; one below 50 indicates that manufacturing activity is contracting. From March through June, the manufacturing index was below 50, but the new reading marked the eighth consecutive month of expansion.

Economists said the January reading indicates a rebound that is spreading throughout the sector.

“This isn’t just some flash in the pan,” said Mark Vitner, senior economist of Wachovia Corp. “When you look at all the components it’s hard not to come away with a more optimistic assessment of the manufacturing sector.”

One of the few exceptions is employment. The ISM index measuring employment settled at 52.9 in January, down slightly from 53.3 in December, a reading that would normally indicate modest growth in factory jobs, economists said.

But long-term changes in manufacturing–– including increased automation and the relocation of factories overseas –– appear to be limiting new job creation. The index shows only that more industrial employers are adding jobs than those who are cutting workers, but does not show how many absolute jobs are being added. It appears, however, that some labor-intensive manufacturers like apparel makers continue to cut large numbers of jobs, while more technology-driven manufacturers are adding relatively small numbers of jobs, Vitner said.

“While the sheer number of employers adding is larger, the absolute number of jobs is still declining,” he said.

Manufacturers’ order backlogs increased in January, a positive sign of future factory activity, ISM said. A sub-index measuring new orders declined to 71.1 in January from 73.1 in December, but the reading still indicates sustained and strong activity.

While many purchasing and supply managers tapped for the report indicated they are experiencing record sales and orders, others say their business has yet to experience a recovery.

“It is obvious that certain sectors are lagging the rest of manufacturing as we start the new year,” the ISM report said.

Of the 20 industries making up the sector, 17 reported growth, led by apparel, textiles, miscellaneous businesses including jewelry and toys; and chemicals. An index measuring factory production rose to 71.1 in January, up from 69.2 in December.