Factory Activity Surges, but Construction Spending Falters

The U.S. manufacturing sector grew in January and at a faster rate than expected, but construction spending fell more steeply than expected in December, as the US economy struggled to recover.

The Institute for Supply Management (ISM) index reached its highest since August 2004. The group said its index of national factory activity rose to 58.4 in January from 54.9 in December.

The median forecast of 79 economists surveyed by Reuters was for a reading of 55.5.

A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.

Separately, the Commerce Department said U.S. construction spending fell to its lowest level since 2003, dragged down by a sharp drop in private residential and state and local government construction.

The government agency said construction spending dropped 1.2 percent to $902.5 billion, falling for a second straight month. November’s construction spending was revised down to show a 1.2 percent decline, instead of a 0.6 percent fall.


Economists surveyed by Reuters had forecast construction spending falling 0.5 percent in December. For the whole of 2009, construction spending fell by a record 12.4 percent.

In December, spending on private home building dropped 2.8 percent, the largest decline since May, after falling 1.4 percent the prior month. Residential investment is showing signs of renewed weakness and made a modest contribution to gross domestic product in the fourth quarter compared to the previous three-month period.

Private nonresidential spending, which has been buffeted by high vacancy rates and tighter access to credit, rose 0.2 percent in December after falling 0.9 percent the prior month.

Spending on state and local government construction projects fell 1.5 percent in December after falling by the same margin in November.

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