In two new government reports Monday that added to signs of an economic recovery, manufacturing activity grew for a second consecutive month as construction spending posted its third monthly gain in a row.
The two monthly gains in manufacturing activity came after 18 months of decline, according to data released by the Institute for Supply Management, formerly the National Association of Purchasing Management. Growth in March registered a higher-than-expected 55.6 percent on the index of manufacturing business activity, compared with 54.7 percent in February. Any figure over 50 percent indicates an expansion.
“Manufacturing has entered a recovery and it looks as though it may have some legs,” said Paul Kasriel, director of economic research at Northern Trust.
New orders increased for the fourth consecutive month, to 65.3 percent from 62.8 percent in February, the data showed.
Still, some economists warned that the manufacturing economy has a long way to go before shrugging off last year’s recession. Recent improvements mainly reflected growth in aircraft and defense spending, said David Huether, an economist with the Washington-based National Association of Manufacturers. Recovery in the broader manufacturing sector will come more gradually, he said.
What’s more, Huether added, it could be some time before there is a significant increase in manufacturing employment. The employment index remained below 50 percent, but grew to 47.5 percent from 43.8 percent in February.
“The job shedding is continuing in manufacturing, but it is beginning to slow,” Huether said, adding that a turnaround for manufacturing jobs could come at midyear.
Spending on new construction, meanwhile, amounted to $879.4 billion in February, a 1.1 percent increase over January figures and a 1.2 percent increase over last February, marking the third straight month of growth, according to the Commerce Department. However, economists attributed much of the increase to the unusually warm winter that allowed for more construction activity and said the growth may not hold.
“There may be some kind of a modest payback in the second quarter,” Kasriel said.
Most of the growth came from residential construction, which grew 3 percent over January figures, while business spending on construction of office buildings and other projects remained weak with a 3 percent drop.
The report also included a downward revision of January figures–to 0.8 percent growth instead of the previous 1.5 percent.
However, the February numbers were stronger than expected and “the trend is still toward better spending in construction,” said Gary Thayer, chief economist at A.G. Edwards & Sons.
The economic reports support the Federal Reserve’s decision to stop cutting interest rates, economists said. While many observers expect the Fed at some point to begin raising rates to ward off inflationary pressures, any such move will depend on signs of growth in demand for goods and services and improved profits for businesses, economists said.
Also critical in the Fed’s decisions on interest rates will be coming unemployment and jobless claims reports, said Mark Vitner, senior economist at Wachovia Securities.
