Factory Activity Growth Rebounds; Construction Spending Weak

Charles Rex Arbogast/AP

By Lucia Mutikani and Daniel Burns

U.S. manufacturing activity unexpectedly accelerated in October as new orders rebounded strongly, which should ease concerns of a significant moderation in economic growth in the fourth quarter.

Other data Monday showed strong automobile sales last month, although top-seller General Motors (GM) missed expectations.

The Institute for Supply Management said its index of national factory activity rose to 59 last month from a reading of 56.6 in September. The index is now back at a 3½ year high touched in August.

The reading exceeded expectations of 56.2, according to a Reuters poll of economists, topping even the most optimistic estimate of 57.3. A reading above 50 indicates expansion in the manufacturing sector.

%VIRTUAL-WSSCourseInline-876%The employment gauge recovered in October to 55.5 from 54.6 in September, while the new orders index rose to 65.8 from October's reading of 60.

The upbeat report suggests that the economy retained much of its momentum from the third quarter.

There have been fears that growth in the final three months of the year could slow down significantly after reports last week showed weak consumer spending and business investment plans at the end of the April-June quarter.

The government last week reported that the economy grew at a 3.5 percent annual pace in the third quarter.

But a separate report Monday showing a surprise decline in construction spending in September suggested this growth estimate could be revised lower.

Construction spending dropped 0.4 percent to an annual rate of $950.9 billion, the Commerce Department said.

August's construction outlays were revised to show a 0.5 percent fall instead of the previously reported 0.8 percent decline.

Economists polled by Reuters had forecast construction spending rising 0.7 percent.

In September, private construction spending dipped 0.1 percent to its lowest level since October last year as an increase in residential outlays was offset by a decline in spending on nonresidential projects. It was the fourth straight month of declines in private constructions spending.

Spending on public construction projects fell 1.3 percent in September, with state and local government investment declining 1.4 percent. Spending on construction projects by the federal government slipped 0.3 percent, falling for a third consecutive month.