Factory Growth Fastest in 20 Years
Dec. 1, 2003
By Eric Burroughs
NEW YORK (Reuters) - U.S. factory activity rocketed to its fastest pace since 1983 in November and construction spending hit another record high the prior month, according to reports on Monday showing the economy's rapid growth is reversing three years of job losses.
The Institute for Supply Management said its manufacturing index jumped to 62.8 in November, the highest since December 1983, from 57.0 a month earlier. That easily beat the forecasts of Wall Street economists.
With growth so strong and new orders still flooding in, factories hired workers for the first time in 37 months, according to the survey. The ISM figures also suggested little slow down in coming months, with factory owners struggling to keep up with demand for goods.
"It's pretty eye-popping. If you look at the components, everything is very positive," said Stephen Stanley, senior markets economist at RBS Greenwich Capital.
That good news comes means government data to be released on Friday could show an even bigger rise in November payrolls than the 135,000 gain forecast by economists, after an increase of 126,000 in October.
"People have really underestimated the speed and improvement in the labor markets," Stanley said.
The ISM figures pushed up the S&P 500 to an 18-month high. The dollar also received a slight lift but remained close to record lows against the euro.
But Treasuries prices suffered on expectations that such robust growth and renewed hiring would bring closer the day the Federal Reserve begins to lift benchmark short-term interest rates, now at a 45-year low of 1 percent.
The yield on the two-year note , the most sensitive to Fed policy, hit its highest level in a year. Still, Fed officials have emphasized that strong growth is needed for at least a few quarters to soak up the excess production and labor capacity.
Two other mainstays of the economy during the past two years, housing and construction, also remain robust.
Construction spending in October posted its fourth straight record level, surging 0.9 percent and also easily beating forecasts.
Overall construction spending rose to a seasonally adjusted annual rate of $922.0 billion in the month from an upwardly revised $913.5 billion in September, the Commerce Department said. Analysts polled by Reuters had expected a 0.6 percent rise. Private residential construction spending rose 2.2 percent to a record $484.1 billion from $473.6 billion.
That suggests the economy's third-quarter 8.2 percent growth rate, also the fastest in two decades, may not slow as much as economists originally thought. While the big consumer spending is expected to ease as the support from tax cuts fades, the industrial sector will now likely pick up much of the slack.
"Now it's time not just for pulling weeds but to plant a new garden. A much greater degree of confidence is very much a factor here," said Norbert Ore, who heads the manufacturing survey for ISM.
A breakdown of the ISM figures showed factories rebuilding inventories for the first time since January 2000 -- near the peak of the boom. Such inventory stocking is expected to buttress overall growth this quarter and early next year.
As the ISM new orders index has jumped 14.1 points since August to a 20-year high of 73.7, the production index has not risen as quickly, said Drew Matus, an economist at Lehman Brothers. That suggests manufacturing "is likely to expand at reasonably high rates for the next few months," Matus said.
A separate report showed the economy's rebound and rock-bottom interest rates have kept the housing market humming.
The average price for U.S. homes rose 5.61 percent in the July-to-September quarter compared to a year earlier, according to the Office of Federal Housing Enterprise Oversight, the agency that regulates mortgage financing giants Fannie Mae and Freddie Mac.
(Additional reporting by Pedro Nicolaci da Costa, Mark Felsenthal and Richard Leong)
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