- The Washington Times - Thursday, May 2, 2002

NEW YORK (AP) Manufacturing activity grew in April for a third straight month, but at a slower pace, while March construction spending fell suggesting a more tepid economic comeback in the months ahead.

The Institute for Supply Management (ISM) said yesterday its index of business activity fell to a lower-than-expected 53.9 in April from a revised 55.6 percent in March. An index over 50 signifies growth in manufacturing. Analysts had been forecasting a reading of 55.

The Commerce Department also reported yesterday that construction activity fell 0.9 percent in March, led by a sharp drop in spending on highways, hospitals, schools and other big government projects.

The decline came after a 0.7 percent rise in February. Analysts had expected a 0.2 percent dip in March.

Even with the drop, the level of spending an annual rate of $874 billion was still considered healthy. Economists were expecting construction activity to edge down with the return of colder weather in March. Mild weather bolstered construction activity in January and February.

The ISM measure is closely tracked by economists because it offers an early reading on the health of the manufacturing sector. Its index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies.

The economy breaking out of the doldrums grew in the first quarter at a 5.8 percent annual rate, its strongest performance in more than two years.

Economists estimate growth has slowed in the current quarter to a rate of around 3 percent to 3.5 percent. First-quarter growth was given a big boost by a slowdown in inventory liquidation by businesses, something that was fleeting. Because of that, analysts said, economic growth in the second and third quarters of this year should be moderate but still solid.

The economy actually shrank at a 1.3 percent rate in the third quarter of 2001, reflecting the toll of last year's recession and the jolt of the September 11 terror attacks. The economy moved back into positive territory in the final three months of last year, posting a 1.7 percent growth rate, an improvement but still a below-par performance.

Given the budding recovery, analysts believe the Federal Reserve will leave interest rates unchanged at its May 7 meeting.

In the construction report, most of the weakness in March came from a 5.6 percent decline in spending on big government projects.

Private builders, meanwhile, trimmed spending on commercial projects in March by 0.3 percent. Spending was lower for industrial complexes and hotels and motels, while spending on office buildings edged up slightly.

Spending on residential projects rose 0.6 percent in March. Low mortgage rates powered home sales to record highs last year.

Analysts expect activity to slow this year, but still be in good shape.

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