- The Washington Times - Monday, January 3, 2005

NEW YORK (AP) — The nation’s industrial sector ended 2004 on a high note, with manufacturing activity expanding in December for the 19th consecutive month, a research group reported.

But the government said construction spending dropped in November as builders reined in projects in anticipation of higher interest rates.

The Institute for Supply Management said that its main index of industrial activity rose to 58.6 in December from 57.8 in November. The December performance was slightly more robust than analysts had anticipated.

A reading of 50 or higher in the index means that the manufacturing sector is expanding, while a figure of less than 50 represents a contraction. The index has been 50 or higher since May 2003.

Norbert J. Ore, chairman of the institute’s survey committee, said the December results were “driven by a significant increase in the new orders index.”

He added that the strong finish for 2004 meant that manufacturing had “significant momentum going into the first quarter of 2005.”

Separately, the Commerce Department reported that construction spending declined 0.4 percent in November, the first drop in 10 months, as private builders cut back on residential and commercial projects.

Analysts had forecast a 0.5 percent rise in construction spending.

But even with the drop, the level of spending — $1.01 trillion on an annualized basis — was quite healthy. And, construction activity in October turned out to be significantly stronger than initially thought. Revised figures showed that spending in October rose by 0.3 percent, compared with the initially reported flat reading.

Dan Laufenberg, chief U.S. economist at American Express Financial Advisors in Minneapolis, said the construction-spending data was disappointing but not unexpected.

“In a rising-rate environment, one would expect that construction would not do well,” Mr. Laufenberg said. “What you’re likely to see is some leveling off of construction activity, which is consistent with the November data.”

Most analysts think home sales will moderate in 2005, in large part on the expectation that mortgage rates will move higher this year. The average rate on 30-year mortgages could climb to about 6.5 percent by the end of this year from 5.84 in 2004, analysts predict.

The manufacturing activity report from the Tempe, Ariz.-based institute is watched closely by the markets because it is the first published data on economic activity for the month of December.

The institute’s price index eased a bit in December to a reading of 72 from 74 in the previous month. Mr. Ore said, “While there is continuing upward pressure on prices, the rate of increase is slowing and definitely trending in the right direction.”

New orders increased to 67.4 in December from 61.5 in November, while new export orders expanded to 60 in December from 54.7 the previous month.

Production eased a bit in December to a reading of 56.9 compared with 57 in November, and the employment index dropped to 52.7 in December from 57.6 in November.

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