Manufacturing grows again, but recovery fragile

NEW YORK Tue Dec 1, 2009 3:20pm EST

A worker uses a saw to shape fiberglass at U.S. thermoplastics maker Aurora Technologies Inc in Monterrey near the border with Texas October 29, 2009. REUTERS/Tomas Bravo

A worker uses a saw to shape fiberglass at U.S. thermoplastics maker Aurora Technologies Inc in Monterrey near the border with Texas October 29, 2009.

Credit: Reuters/Tomas Bravo

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NEW YORK (Reuters) - The U.S. manufacturing sector grew for the fourth straight month in November, though at a slower pace, and questions remain about the staying power of the incipient economic recovery.

Signs the housing market was bouncing back in October were also tempered by a flat reading for construction spending for that month in other data reported on Tuesday.

The Institute for Supply Management said on Tuesday its index of national factory activity decelerated to 53.6 in November from 55.7 in October. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November. Readings above 50 indicate expansion in the manufacturing sector, while numbers below 50 show contraction.

"We're basically four months into a somewhat weak recovery. It will take a while to spread across 18 manufacturing industries," said Norbert Ore, chairman of the ISM manufacturing business survey committee in Atlanta, Georgia.

The U.S. dollar trimmed gains against the yen after the manufacturing report, while U.S. stocks were little changed, but U.S. Treasury bond prices firmed.

The ISM report was "a bit less-than-expected but overall still a strong number when added to the previous monthly levels that were greater than 50," said Tom Sowanick, chief investment officer with the Omnivest Group in Princeton, New Jersey.

"Note that the China ISM was also up last night which confirms that we are in a global recovery," Sowanick added.

But the ISM report's employment index for the manufacturing industry slipped to 50.8 in November from 53.1 in October, which had been the strongest showing since April 2006.

"Given the number of manufacturing jobs lost and the number of facilities closed, rarely are those reopened. It will take more growth than we're seeing right now to create significant growth in manufacturing jobs," Ore said.

New manufacturing orders rose to 60.3 in November from a 58.5 reading in October.

Some economists warn that although the brisk rebound of new orders hints that capital spending will recover, because industrial output is so depressed, companies may not ramp up spending much, if at all.

In other data on Tuesday yet more evidence appeared that U.S. housing may be slowly emerging from a three year slump.

Pending sales of previously owned U.S. homes rose unexpectedly to their highest level in 3-1/2 years in October, a survey showed, suggesting the housing market recovery was gaining steam.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in October, rose 3.7 percent to 114.1, rising for a ninth straight month. This is the longest streak of gains since the series started in 2001.

The housing market, the main trigger of the worst U.S. recession in 70 years, is recovering from a three-year decline.

Housing construction contributed to economic growth in the third quarter for the first time since 2005.

Recovery is being supported by the popular $8,000 tax credit for first-time buyers, low mortgage rates, and falling house prices. The government last month extended the tax incentive into next year and added a $6,500 credit for home owners buying a new residence. It had been due to expire on November 30.

"The credit is helping unleash a pent-up demand from a large pool of financially qualified renters," said NAR economist, Lawrence Yun.

U.S. construction spending was flat overall in October at $910.8 billion despite the biggest surge in homebuilding in more than a decade, the Commerce Department said on Tuesday in a report that sharply revised the prior month's data.

Instead of rising by 0.8 percent as it said a month ago, the Commerce Department now says September construction spending slumped by 1.6 percent, its sharpest monthly fall since a 2.8 percent decline last January.

Spending on homebuilding was up 4.4 percent in October, more than recovering from a 2.0 percent dip in September. It was the biggest monthly gain in private residential spending since a matching 4.4 percent rise in March 1998.

(Additional reporting by Jennifer Ablan, Ellen Freilich, Lucia Mutikani and Glenn Somerville)

(Reporting by John Parry).

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