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U.S. Factories Expand, Construction Spending Inches Up

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By Lucia Mutikani

WASHINGTON -- U.S. factory activity accelerated for a second straight month in March as production rebounded, in the latest sign that winter's icy grip on the economy was loosening.

But severe weather continued to hold back economic activity in the first quarter. Construction spending barely rose in February, with private residential construction outlays recording their biggest decline in seven months, other data showed Tuesday.

"This is a bounce back from the weather effect from what we were seeing. We should see growth in manufacturing the rest of the year with the overall growing economy," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

The Institute for Supply Management said its index of national factory activity rose to 53.7 in March, up slightly from February's read of 53.2.

Economists polled by Reuters had forecast the index rising to 54 in March. Readings above 50 indicate expansion in the sector, which accounts for about 12 percent of the economy.

Activity was buoyed by a rebound in production, which ended a three-month string of slow growth. The forward-looking new orders index rose to 55.1 from 54.5 in February.

Even as the sector continues to break out of the cold spell, factory activity remains slower than during the second half of last year.
Warehouses are bulging with massive stocks of unsold goods accumulated in the second half of 2013, leaving businesses with little incentive to place large orders with manufacturers.

The slow pace of inventory accumulation and harsh weather are expected to hold the economy to an annualized growth pace below 2 percent in the first quarter. That would be a step back from the fourth-quarter's 2.6 percent rate.

In a separate rate, the Commerce Department said construction spending edged up 0.1 percent to an annual rate of $945.7 billion. Spending had declined 0.2 percent in January.

An unusually cold and snowy winter disrupted economic activity early in the year. Activity, however, is showing signs of accelerating as temperatures warm up, with employment growth, industrial production and retail sales gaining momentum in February.

Construction spending in February was curbed by a 0.8 percent drop in private residential construction projects, which was the largest fall since last July.

However, a 1.2 percent surge in spending on nonresidential construction projects, which include factories and gas pipelines, lifted overall private outlays to their highest level since December 2008.

The decline in private residential construction was led by a 1.1 percent drop in single-family home building.

Public construction spending nudged up 0.1 percent in February, with a 5.8 percent jump in federal government outlays offsetting a 0.5 percent fall in state and local government spending.

-Additional reporting by Ryan Vlastelica and Richard Leong in New York.

 

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