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Manufacturing, Home Sales on Rise

A bevy of reports on Monday attested to a recovering economy, with manufacturing activity, pending home sales and construction spending all exceeding expectations.

While some readings were juiced by one-time sparks, the Dow Jones industrial average rose 76.71 points to 9789.44. The reports come as the Federal Reserve on Tuesday begins a two-day meeting on interest rates.

The manufacturing sector grew for the third consecutive month in October and at the fastest pace since April 2006. The index of factory activity was 55.7, up from 52.6 in September, the Institute for Supply Management (ISM) said. Above 50 indicates expansion; below means contraction.

Most encouraging: A measure of factory employment signaled growth for the first time in 14 months. It's unlikely factories are adding jobs after cutting 2 million since the recession began in December 2007, says Norbert Ore, who oversees the ISM survey. But the rate of decline is likely "slowing significantly," he says.

Driving the rebound is a production ramp-up aimed at replenishing inventories depleted during the slump. UBS analyst Maury Harris says a resulting rise in hiring and capital spending should lift customer demand, further boosting production. But citing weak consumer spending, Ore expects low growth into 2010.

Meanwhile, pending home sales in September rose for the eighth consecutive month, the longest streak since tracking began in 2001, says the National Association of Realtors (NAR). Sales of pending homes climbed 6.1% over August. The index is at a nearly three-year high.

"This is getting home values to start to stabilize," says Lawrence Yun, chief economist with NAR.

The home sales rally has been traced to a tax credit of up to $8,000 for first-time home buyers that's set to expire Nov. 30.

If Congress passes an extension and expands it to include some current homeowners, the surge could continue in 2010, says Bernard Baumohl of Economic Outlook Group.

The revived housing market is lifting construction spending. It jumped 0.8% in September from the previous month, the Census Bureau said.

Single-family outlays rose 2.4%, but multifamily fell 4.1% amid an oversupply of homes and tight credit. Non-residential slipped 1.8% in the face of a commercial real estate downturn.

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