Construction, Manufacturing Data Boost Recovery Hopes

Politics Reuters

Construction spending rose more than expected in March, and a survey of factory activity in April increased, suggesting steady recovery in U.S. demand.

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ISM: The pace of growth in the U.S. manufacturing sector slowed in April for a second straight month but input prices were at their highest in nearly three years, according to an industry report released on Monday.

KEY POINTS:

* The Institute for Supply Management said its index of national factory activity fell to 60.4 in April from 61.2 the month before. The figure topped economists' forecasts for a reading of 60. The index for prices paid rose to 85.5 from 85, the highest since July 2008.

* A reading above 50 indicates expansion in the sector.

* The Commerce Department said construction spending increased 1.4 percent to an annual rate of $768.9 billion, reflecting strong gains in private residential and nonresidential outlays. February's construction, however, spending was revised to show a bigger 2.4 percent drop than the previously reported 1.4 percent decline.

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* Economists polled by Reuters had forecast construction spending rising 0.4 percent in March.

COMMENTS:

NORBERT ORE, CHAIR, ISM MANUFACTURING BUSINESS SURVEY COMMITTEE:

A lot of the growth is being driven by exports and the weaker dollar. Eighty percent of our respondents export. Domestically, the consumer has gotten a little more confidence and the stock market has been helping that recently. Still an awful lot of activity in the export market.

"April was another good month for the manufacturing sector. While we see a slight change in the overall index, a tenth of a point downward, that's not a sign of weakness in the sector.

"Month over month, growth in orders has been so strong. Production is down somewhat, but again it was a 69 last month where it would not stay that long. Index readings in the low to mid 60s is very strong for production.

"Most encouraging is employment. It's obvious that manufacturers are hiring. Manufacturing is not the source of jobs that it once it was, but nonetheless manufacturers are hiring. One respondent said they filled 12 jobs this month and will add another 12 next month. We get continuous comments about filling jobs. In most cases it's in the 10s, though, not in the hundreds or thousands. Nonetheless manufacturers are optimistic about the future.

"Supplier deliveries are a little faster than they were last month and that's a positive. We saw a shift in inventories... We've gone through some inventory cycles. Customers' inventories show room for replacement.

"The price index is up a little bit more. The list of commodities that are up in price continues to grow and covers most of the basic commodities. Every manufacturer is feeling price pressure. And also the impact of supply chains from the disaster in Japan. Commodities are in short supply, the list is relatively small. There's a chronic problem with electronic components. That was so even before the earthquake in Japan.

"Overall April was an outstanding month. We're through a third of the year and manufacturing continues to thrive. There's great strength in the export market."

KURT KARL, CHIEF U.S. ECONOMIST, SWISS RE, NEW YORK:

"ISM is coming in with some very high numbers. With what is happening in the world at this point you would expect them to be down. We've had oil prices, we have had hits to Japan, we have had hits domestically from production and supply constraints from the Japanese disruptions and we are still over 60 on the manufacturing so it is a very good report given the developments over the last six weeks.

"Construction is a nice number. It slumped a lot in February, which was partially weather-related so even though it is up it is still below December of last year. It is a good lift into the next quarter."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH, CONNECTICUT:

ISM: "We're continuing to see quite robust readings on this data series. It's rather resilient despite the GDP numbers. but that's been one of the strong points since the beginning of this cycle and continues to point to larger growth rates as far as manufacturing is concerned."

TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC SECURITIES, NEW YORK:

"Overall this looks like a fairly solid report and is consistent with manufacturing being fairly buoyant here. Even some of the comments made by respondents are fairly encouraging and conducive for manufacturing. From an overall GDP perspective it reflects that the economy is moving along at a fairly moderate clip."

JAMES NEWMAN, HEAD OF TREASURY TRADING AND AGENCY TRADING, KEEFE, BRUYETTE, AND WOODS, NEW YORK

"It looks like good data, prices paid is a little bit higher that what they were looking for and the number itself is almost stronger by one-tenth. Its good data, the market is selling off a little bit but I wouldn't call it market moving."

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

"March's construction spending report with a 1.4% rise saw its first increase since November and its strongest rise since April 2010, comfortably exceeding a consensus for a 0.4% increase even with net revisions marginally negative. January's change was revised up by 0.8% to -1.0% from -1.8%, but February was revised down by 1.0% to -2.4% from -1.4%. The underlying construction picture is weak but the March rebound suggests a harsh winter exaggerated the 3 straight declines (now totaling 6.6%) that preceded it, with more favorable weather in March seeing those losses partially corrected."

MARKET REACTION: STOCKS: U.S. stock indexes tacked on gains BONDS: U.S. bond prices added losses FOREX: The dollar was little changed

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