Originally created 04/02/02

Manufacturing grows for second month in a row



WASHINGTON -- Manufacturing activity flashed a growth signal for the second month in a row and construction spending posted it biggest increase in a year, fresh signs that the country's economic revival is chugging ahead.

The Institute for Supply Management, formerly known as the National Association of Purchasing Management, reported Monday that its index of business activity rose to 55.6 in March from 54.7 percent in February. An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction.

The performance was even stronger than many analysts were anticipating. They had been expecting a reading of 54.3 in March.

That's good news for the nation's battered manufacturing sector, which was in a slump well before the country fell into recession in March 2001. Hardest hit by the sour economy, factories throttled back production and laid off hundreds of thousands of workers.

Economists said the latest batch of economic news should provide sufficent evidence to convince doubting Thomases that the rebound in both the national economy and in manufacturing is real and not an illusion. Economists also said the reports suggest that the economy is growing strong enough so as not to slip back into a recession, a fear among some analysts.

"A factory rebound is clearly under way, and I suspect that it will be quicker and stronger than many expect," said Ken Mayland, president of ClearView Economics.

"I'm a believer of the spring theory of the economy. You compress it a little, it bounces back a little. You compress it a lot, it snaps back hard. Factories suffered their worst setback in two decades, which sets them up to come back with gusto," Mayland said.

But on Wall Street, stocks fell. The Dow Jones industrial average was down 114 points after the first hour of trading and the Nasdaq index was off 30 points.

In another report, spending on construction projects grew by a bigger-than-expected 1.1 percent in February as builders took advantage of Americans' strong demand for new homes, the Commerce Department said.

Many analysts were forecasting a smaller, 0.6 percent rise.

Virtually all the strength came from increased spending on residential construction, which rose 3.5 percent, especially single-family homes.

Despite the recession, home sales hit record highs last year. Buyers snapped up both new and existing homes, motivated not only by low mortgage rates but also by increases in home values, especially as the stock market swooned.

Even as mortgage rates have crept up over the last four weeks, home sales have remained at solid levels.

Spending on new single-family homes rose by 3.1 percent in February, the biggest increase since December 1993.

But spending on commercial projects, including industrial complexes, office buildings and hotels, declined by 3 percent in February. Spending on big government projects, including highways, dipped by 0.5 percent.

The 1.1 percent increase in construction spending in February matched the rise recorded in February 2001. It marked the third straight month in a row that construction spending went up. In January, construction spending rose 0.8 percent, a much smaller increase than the 1.5 percent advance the government previously reported.

To rescue the economy from recession, the Federal Reserve slashed interest rates 11 times last year, pushing some interest rates down to the lowest levels seen in four decades.

The Fed, citing signs of a turnaround, opted in January and in March to hold interest rates steady, meaning businesses and consumers will be able to continue to enjoy low borrowing costs to finance such things as construction projects, capital improvements and home remodeling.

But many economists say Fed policy-makers will boost short-term interest rates later this year as the economic rebound gathers steam.