Manufacturing activity surges in October

Manufacturing activity surges in October

Associated Press
November 1, 2010 9:40 am

Manufacturing activity expanded last month at the fastest pace since May, driven by demand in the United States and abroad for cars, computers and other goods.

The report signals that U.S. factory output, which slowed over the summer, remains a strong player in an otherwise weak economy. A separate report on Monday showed that manufacturing in China, the world's second-largest economy, also grew.

The Institute for Supply Management said Monday that its manufacturing index read 56.9 in October, up from 54.4 in September. It was the 15th straight month of growth. A reading above 50 indicates growth.

"This was a very positive report, and it suggests that the U.S. manufacturing sector is beginning to reap the benefits of the weak dollar," Eric Green, an economist at TD Securities, wrote in a note to clients. A weak dollar makes U.S. goods cheaper overseas.

Stocks rose after the report was released before giving back some of the gains. The Dow Jones industrial average climbed 60 points in midday trading.

Manufacturing helped drive the U.S. economy out of recession last year, but growth had slowed in recent months. The ISM's manufacturing index rose to 60.4 in April, the highest level since June 2004. The index had bottomed out at 32.5 in December 2008, the lowest since June 1980.

The jump in October could ease concerns that companies are almost through rebuilding their stockpiles _ a trend that appeared to be slowing factory output growth in recent months.

"The U.S. manufacturing sector is getting a second tail wind," Green said.

Manufacturing activity in China also improved last month. A survey affiliated with the government said its measure rose to 54.7 in October from 53.8 in September.

Brian Bethune, an economist at IHS Global Insight, said China's growth is important for the U.S. economy. China's manufacturing sector is key to the rest of Asia's economy, and the region as a whole is a leading destination for U.S. exports.

Still, much of the U.S. economy's health depends on consumer spending and the gains in manufacturing can't be sustained unless that picks up.

A separate report from the Commerce Department showed that consumer spending growth slowed in September and incomes fell for the first time in more than a year. Declining incomes makes it harder to sustain spending.

Americans are spending more on autos and computers. Demand for both products grew in October, according to the manufacturing report.

New orders for all goods jumped by 7.8 points to 58.9, the largest jump since January 2009. And exports soared by 6 points to 60.5.

The growth in exports is helping reduce the imbalance in the U.S. trade gap. Import growth fell to its lowest level since November 2009, the ISM report noted.

Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said the drop shows more manufacturers are able to obtain parts in the United States, rather than overseas.

Manufacturing companies, particularly in electronics, had trouble ramping up production earlier this year after factories were closed during the recession, he said. That left many of them facing a parts shortage, he said, which they addressed by importing more components.

"The good news is, maybe this has stopped," he said. "We're unwinding this surge of imports."

That surge has cut into the nation's economic growth in the past six months, Meckstroth said. The trade deficit subtracted about 2 percentage points from growth in the third quarter, and more than three points in the second quarter.

The employment index also rose, after a sharp fall the previous month. That means manufacturers may be adding jobs this month, after cutting them in the previous two, economists said.

Still, more hiring in the manufacturing sector, which accounts for about 10 percent of the economy, won't be enough by itself to bring down the jobless rate. The government will issue the October jobs report, which update the unemployment rate, on Friday.

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