Originally created 02/02/05

Manufacturing activity expands in January

NEW YORK - The manufacturing sector grew for the 20th consecutive month in January, though at a moderated pace, a private research group reported Tuesday, affirming the rebound in activity at the nations' factories.

The Institute for Supply Management said that its index measuring manufacturing activity declined to 56.4 in January, from a revised reading of 57.3 in December. The January figure was slightly below the reading of 57 anticipated by analysts.

Although the index declined, the fact that it remained above 50 indicates that the sector continued to grow last month but at a somewhat slower pace. A reading of 50 or above in the index means the manufacturing sector is expanding, while a figure below 50 represents a contraction.

Norbert J. Ore, chairman of the institute's survey committee, said the January index reflects continued strength in manufacturing, with both production and employment picking up.

"January sets the tone for a strong first quarter. Even though the (index) is slightly lower, the month-over-month growth is still quite strong, and will provide significant momentum for the remainder" of the quarter, Ore said. "Demand for exports continues to be quite strong, with a number of industries reporting significant growth."

In other economic news, the Commerce Department reported Tuesday that construction spending jumped by 1.1 percent in December, making last year the best for building activity since 1996. The December increase was the sector's best showing in eight months, a sign of robust activity in both private and public sector building projects.

For the year, building activity increased 9 percent to $998.4 billion, the largest increase since a 10.4 percent rise in 1996.

Stock prices were slightly higher following release of the reports. In morning trading, the Dow Jones industrial average rose 34.44 to 10,524.38. Broader indexes were also higher. The Standard & Poor's 500 index rose 3.46 to 1,184.73. The Nasdaq composite index rose 3.81 to 2,066.22.

The manufacturing data from ISM is watched closely by economists and investors because it offers the first comprehensive look at factory activity for the prior month.

The January increase in the index, while below expectations, reflects strength not just in manufacturing, but in the broader economy, said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis.

That moderate growth sets the stage for Federal Reserve policymakers to continue gradually raising interest rates, he said.

"We are seeing consistent evidence that the economy is enjoying sustainable growth. It's not extremely robust growth, but it does appear that the economy is probably going to continue to grow at a healthy pace this year," Thayer said.

The Fed's Open Market Committee is widely expected to raise interest rates by a quarter-point Wednesday, at the conclusion of a two-day meeting. That would be the sixth increase in rates since June, reflecting a measured effort by policymakers to maintain a balance between economic growth and inflation.

The Tempe, Ariz.-based ISM said its index measuring production increased to 57.8 in January from 56.7. A separate index gauging employment jumped to 58.1 from 53.3 in December.

At the same time, the group's measure of new orders declined to 56.5 from 62.6 the previous month. In addition, ISM's index of prices paid by manufacturers declined to 69 from 72 in December, showing some easing in the pace of increases in prices for the materials they use.

Overall, of the 20 manufacturing sectors surveyed by the group, 12 reported growth. They include primary metals, furniture, rubber and plastic products, transportation and equipment, industrial and commercial equipment and computers, instruments and photographic equipment, miscellaneous, textiles, chemicals, electronic components and equipment, apparel and food.

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