- The Washington Times - Tuesday, January 3, 2006

NEW YORK (AP) — Manufacturing grew at a surprisingly slower pace in December, a month after construction spending jumped with a pickup in highway and school building as well as projects that may be tied to recovery efforts in states hurt by 2005’s deadly hurricanes.

The economic reports were released yesterday ahead of the minutes of a Federal Reserve policy-making meeting that suggested the central bank may be close to halting its series of interest rate increases.

Prices of stocks rebounded after the release of the Fed-meeting minutes. Treasury prices continued to climb after the minutes were published.

A private industry group that surveyed business executives said manufacturing slowed in December as prices for fuel and raw materials fell.

The Institute for Supply Management said its manufacturing index fell to 54.2 last month from November’s 58.1. A reading above 50 indicates the sector is expanding; below 50 indicates manufacturing activity is shrinking.

“Overall, still quite strong, but a bit disconcerting nonetheless,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., said in a report about the ISM index. While he does not expect the report to mark the start of a “sustained softening,” Mr. Shepherdson said that another “softish report next month would be worrying.”

The index “may not be increasing enough to support job growth” in manufacturing, said Frank Nothaft, chief economist at government-sponsored mortgage company Freddie Mac.

The ISM’s index of prices paid by manufacturers for raw goods fell to 63 last month from November’s 74, in part because supply disruptions among producers of these commodities brought on by hurricanes last year have been ironed out. Also, less demand for raw goods among manufacturers could have lowered prices.

Meanwhile, the Commerce Department reported yesterday that construction spending reached a new high in November amid government spending on school and highway construction as well as sewer systems. Total building activity rose to a record $1.146 trillion at an annual rate in November, up 0.2 percent from the October pace.

Private construction rose by 0.2 percent to an all-time high of $892.4 billion even though home construction was unchanged. November saw a 0.5 percent rise in nonresidential construction, reflecting big gains in construction of offices, hotels and the category that includes shopping malls.

Government construction spending was up 0.3 percent to a new record of $253.9 billion. Analysts said part of this strength could reflect rebuilding efforts in Gulf Coast areas devastated by a string of 2005 hurricanes.

“The overall momentum in construction remains solid,” said Brian Bethune, an economist at Global Insight. “We expect this pattern to continue, with public and commercial construction taking the leadership baton in 2006 as housing starts ease back moderately.”

Much of the expected drop in housing starts is tied to interest rate increases engineered by the Federal Reserve in 2004 and 2005. Yesterday, the Fed hinted in minutes from a Dec. 13 policy meeting that an end to these rate increases may be in sight.

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