DCN ARCHIVES

February 10, 2011

U.S. construction spending ends 2010 at lowest level since 2000

WASHINGTON

U.S. factory activity expanded in January at the fastest pace in nearly seven years, as manufacturers reported a sharp jump in new orders.

The Institute for Supply Management, a private trade group, said that its index of manufacturing activity rose last month to 60.8, from 58.5 in December.

The sector has expanded for 18 straight months, and January’s reading was the highest since May 2004. Any reading above 50 indicates expansion.

The manufacturing sector bottomed out at 33.3 in December 2008, the lowest point since June 1980.

Rising industrial output has been a key driver for the economy since the recession ended in June 2009. Tuesday’s report shows the sector is still expanding at a healthy pace.

“Momentum is again building for this sector,” said Thomas Duesterberg, the CEO of Manufacturers Alliance/MAPI, a trade group. “Manufacturing will continue to lead the recovery at least through mid-year.”

Manufacturing companies are likely benefiting from a cut in Social Security taxes that may boost consumer spending, and a tax break for companies that purchase new machinery and other big-ticket items, analysts said.

Both tax breaks took effect last month.

But not every sector of the economy is booming. Construction spending fell 2.5 per cent in December.

Builders began work on fewer homes, shopping centres and other commercial real estate projects. Spending on public projects also declined, as state and local governments grapple with budget crises and federal stimulus dollars fade.

Overall, construction spending fell 10.3 per cent in 2010 to the lowest level since 2000.

“If manufacturing is the best performing sector, construction remains the worst,” said Paul Ashworth, an economist at Capital Economics.

Consumers are spending more on autos, appliances and other goods, while businesses have invested in more industrial machinery and computers. Those trends boosted economic growth to a 3.2 per cent pace in the October-December quarter, the Commerce Department said last week.

Duesterberg said orders for mining and drilling equipment and for airplanes and airplane parts are also rising.

Factories’ healthy pace of expansion is likely to continue in the coming months. Manufacturing firms surveyed by ISM said their backlog of orders jumped in January, pushing an index measuring that activity to 58 from 47.

U.S. factories are also benefiting from rising overseas sales.

The index of export orders jumped to 62 in January, from 54.5 the previous month. That matches a recent peak reached in May and is otherwise the highest level for that index since December 1988.

Associated Press

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