September 23, 2014 / 1:48 PM / 5 years ago

Sturdy U.S. factory, services data bolster growth picture

WASHINGTON (Reuters) - U.S. manufacturing activity hovered at a near 4-1/2-year high in September and factory employment surged, supporting views of sturdy economic growth this quarter.

Robotic arms spot welds on the chassis of a Ford Transit Van under assembly at the Ford Claycomo Assembly Plant in Claycomo, Missouri April 30, 2014. REUTERS/Dave Kaup

The economic picture was further brightened by other data on Tuesday showing an acceleration in factory and services industry growth in some areas of the country. Housing, however, continues to plod along, with home price gains decelerating sharply in July.

“The rest of the economy continues to deliver the goods, but the housing market is still not performing as everybody thought it would and that’s going to take some time,” said Eugenio Aleman, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Financial data firm Markit said its preliminary or “flash” factory purchasing managers index came in at 57.9, unchanged from August when it touched its highest level since April 2010.

Any reading above 50 signals expansion in manufacturing, which accounts for about 12 percent of U.S. economic activity.

Factory jobs rose for a second straight month, Markit said, with a gauge of labor market conditions touching its highest level since March 2012. A measure of new orders held steady above the 60 level for the third time in the past four months, indicating persistent demand for manufactured goods.

Manufacturing activity in the third quarter was the strongest since Markit started tracking it in mid-2007.

Separately, the Federal Reserve Bank of Richmond said its regional manufacturing index increased this month, with factories citing a rise in new orders and shipments.

Firms in the region, which stretches along the Eastern seaboard from South Carolina to Maryland, also hired more employees and increased the average workweek, but there was some moderation in wage growth.

“The healthy performance of manufacturing is not surprising ... and reflects the pick-up in broader economic activity, a trend that has emerged since the beginning of the second quarter,” said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.


Karydakis, however, cautioned that sluggish growth in the euro zone and some key emerging markets could limit the sector’s export-oriented growth over the next few quarters.

Data on Tuesday showed euro zone business activity in September was the weakest this year, while factory activity in China picked up only slightly.

In contrast, the U.S. economy is poised for a brisk expansion in the third quarter, with estimates ranging as high as a 3.5 percent annual pace. The economy grew at a 4.2 percent rate in the second quarter.

“We expect GDP to grow at an annualized rate of at least 3 percent and as much as 4 percent, depending to a large extent on how the vast services economy fared in September,” said Chris Williamson, chief economist at Markit in London.

The services sector appears to have gotten off to a strong start in September. The Federal Reserve Bank of Philadelphia said its new general activity index for non-manufacturing firms in the mid-Atlantic region jumped sharply.

The surge in activity reflected increases in new orders, sales and full-time hiring. Service sector employees also worked longer hours, while firms increased their capital spending.

In a fourth report, the Federal Housing Finance Agency said home prices increased 4.4 percent in the 12 months through July, the smallest gain since September 2012.

While the cooling price increases reflect a tepid house market recovery, they are expected to stimulate demand.

Reporting by Lucia Mutikani; Additional reporting by by Dan Burns in New York; Editing by Andrea Ricci

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