Originally created 06/02/04

Construction spending, manufacturing activity up



WASHINGTON -- Construction spending registered its best month on record in April and manufacturing activity expanded in May, fresh evidence of the economy's momentum as it headed into summer.

The Commerce Department reported Tuesday that the value of buildings put in place rose by 1.3 percent in April from March to a seasonally adjusted annual rate of $970.4 billion, the highest level on record.

In a second report, the Institute for Supply Management said its index of manufacturing activity rose to 62.8 in May, up from 62.4 in April.

The latest snapshot of manufacturing was better than economists were expecting. They were forecasting a reading of 61.5 in May. It marked the 12th straight month that manufacturing expanded.

Any index reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is contracting.

"Business confidence and sustainable growth have returned to the economy," Clifford Waldman, economist at the Manufacturers Alliance/MAPI, a research group, said of the two reports.

Norbert J. Ore, who heads the institute's survey committee, said the manufacturing sector "grew at a faster rate in May, continuing its recent strong performance." He noted that the rate of growth in the closely watched new orders and production categories "slowed slightly," but added that this "was offset by a significant increase in employment."

On Wall Street, however, stocks dipped slightly. The Dow Jones industrials were off 8 points and the Nasdaq was down 4 points in morning trading.

In the construction report, the 1.3 percent advance in April was more than three times the 0.4 percent gain that economists were predicting.

The strong showing comes on top of a red-hot March, when spending jumped by 2.4 percent - better than previously reported. That increase had pushed the value of all construction projects in March to a rate of $957.6 billion, which had been the previous all-time high.

The strength in April was broad-based, with spending on residential buildings by private companies and spending on public works projects by state and local government each posting their best months on record.

The pair of reports suggested that the economy, which grew at a healthy 4.4 percent rate in the first quarter, is in solid shape in the current April-to-June quarter.

Against that backdrop, a growing number of economists believe the Federal Reserve will boost short-term interest rates for the first time in more than four years at its next meeting on June 29-30. The Fed's key short-term rate is now at a 46-year low of 1 percent, where it has been since last June.