NEW YORK (Reuters) - Factory activity expanded at a faster pace than expected in September as production and hiring increased, the latest sign of resilience in manufacturing despite faltering economic growth.
U.S. construction spending unexpectedly rebounded in August from a drop in July as outlays on state and local government building projects rose sharply, a government report showed on Monday.
ISM * The Institute for Supply Management said on Monday its index of national factory activity rose to 51.6 last month from 50.6 in August. * September marked the 26th straight month of expansion in a sector that has shouldered the broader economic recovery. * Economists polled by Reuters had expected the index to edge down to 50.5.
CONSTRUCTION SPENDING * Construction spending rose 1.4 percent to an annual rate of $799.15 billion, the Commerce Department said. * Economists polled by Reuters had forecast a 0.3 percent drop after July construction spending fell by a revised 1.4 percent. *Private construction spending in August rose 0.4 percent
BRADLEY HOLCOMB, CHAIR, ISM MANUFACTURING BUSINESS SURVEY COMMITTEE, DALLAS, TEXAS:
“ISM came off its low for the year. Production Employment Supplier deliveries and Inventories were all positive.
“The main concern is new orders. The backlog of orders fell to its lowest level since April 2009 at 41.5 so we see production is up, back in growth territory, but manufacturing is working off its backlog of orders. The main concern going forward would be if new orders didn’t pick up.
“There is some strength in export orders. Exports up three points is really good news. It’s fairly broad-based.
“We continue to see growth for 26 consecutive months but there is underlying concern about new orders. 7 industries up but nine contracting. In the quotes there are comments about the economy overall: high unemployment, consumer confidence, political uncertainty all making people very cautious.
“We continue to see the PMI in positive territory but it’s not a robust reading, due to the concern about new orders.
“I’m hopeful we will continue to see growth and a return of growth in new orders as we approach the holiday season.”
“We got an upside surprise here (in manufacturing), much better than expectations. We heard some pretty ugly whisper numbers this morning but this is much better. It does seem like the breakdown is largely unimpressive but the stagnant state of the economy is just being protracted. We are not seeing much improvement but we are not seeing much deterioration from here.
“(Construction spending) was better than what we were expecting. We got a big upward correction in public spending — that was due, it has been very weak. On the private side we got an upside there but the construction industry is really just parallel to housing, which is really just bumping along the bottom of its cyclical range.”
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
“ISM is showing some pretty strong resilience here. I’m surprised at how well it’s performing, particularly in the face of all of these headwinds. As a key leading economic indicator this has got to be a pretty big relief to most people.
“The one thing I was not encouraged by is new orders has remained below breakeven for the past three months and did not budge from last month. This suggests a slower pace of manufacturing activity. We should all be braced for that.
“It’s not pointing toward a recession at this point.
“ISM is a sentiment indicator. There are other hard data points. I don’t think the Fed was overreacting.”
RANDY BATEMAN, CHIEF INVESTMENT OFFICER, HUNTINGTON ASSET MANAGEMENT, COLUMBUS, OHIO:
“The data lends credence to the idea that there is some strength in the economy, which is nice to see for a change. Let’s hope this is indicative of a market that is showing improvement and will be strong for the rest of the year.”
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
“The ISM manufacturing index was a little better than expected, but not greatly reassuring, mainly because new orders are stagnant, in contrast to the very good news evident in the Chicago purchasing managers survey. But the nationwide ISM survey did have the redeeming feature that employment strengthened, which could mean companies are looking beyond the immediate weakness. Export orders were encouragingly strong.”
MARKET REACTION: STOCKS: U.S. stock indexes cut losses BONDS: U.S. bond prices pare gains FOREX: The dollar trims gains versus euro