US factory output rises, but construction falls

FILE - In this Jan. 11, 2012 file photo, Deris Medina works on a sold Seahunter 40' at SeaHunter Boats Inc., in Princeton, Fla. U.S. factories stepped up hiring and production in March, the latest evidence that manufacturing is growing at a healthy pace and fueling the recovery. (AP Photo/Alan Diaz, File)

FILE - In this Jan. 11, 2012 file photo, Deris Medina works on a sold Seahunter 40' at SeaHunter Boats Inc., in Princeton, Fla. U.S. factories stepped up hiring and production in March, the latest evidence that manufacturing is growing at a healthy pace and fueling the recovery. (AP Photo/Alan Diaz, File)

FILE - In this Jan. 25, 2012 file photo, Gina Johnson performs leak tests on hydraulic fittings at the Eaton Corp. plant in Berea, Ohio. U.S. factories stepped up hiring and production in March, the latest evidence that manufacturing is growing at a healthy pace and fueling the recovery. (AP Photo/Mark Duncan, File)

FILE - In this Feb. 13, 2012 file photo, a workman welds a stainless steel tank at JV Northwest, in Camby, Ore. JV Northwest manufactures stainless steel vessels. U.S. factories stepped up hiring and production in March, the latest evidence that manufacturing is growing at a healthy pace and fueling the recovery. (AP Photo/Rick Bowmer, File)

WASHINGTON (AP) ? U.S. factories stepped up hiring and production in March, the latest evidence that manufacturing is growing at a healthy pace and fueling the recovery.

But a separate report on construction spending showed that building activity declined in February for the second straight month, disappointing economists.

The reports show "that the economy is still locked on a very gradual healing trajectory," said Steven Ricchiuto, chief economist at Mizuho Securities.

The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of manufacturing activity rose to 53.4 in March. That's up from 52.4 in the previous month. Readings above 50 indicate the sector is expanding.

A measure of manufacturing employment rose to a nine-month high, a sign that factories are hiring more workers. Manufacturers are already a big source of job gains. They've added more than 100,000 jobs in the past three months, about one-seventh of all net gains.

Separately, the Commerce Department said construction spending fell 1.1 percent in February, after a fall of 0.8 percent in the previous month. Spending on home building, office construction and government projects all fell.

The weak report shows that the construction industry is still struggling more than two and a half years after the recession ended.

Stocks rose after the reports were issued. The Dow Jones industrial average moved up 64 points in midday trading. Broader indexes also rose.

The ISM's survey found that new orders are increasing, but at a slightly slower pace than in February. Order backlogs rose at a faster pace. And manufacturers said their customers are reporting low inventories, which suggests they are likely to keep ordering new goods. All of those indicators suggest production should stay healthy in the coming months.

An index tracking export orders dropped sharply, but remained in expansionary territory. That suggests that overseas demand is easing. And a measure of prices that manufacturers pay dipped slightly but remained high, pointing to rising costs for raw materials, such as oil, copper and plastics.

The survey found that the factory growth was widespread. Fifteen of 18 manufacturing industries reported expansion, including mining, steel and other metal production, oil and gas, autos and furniture.

Increasingly confident U.S. consumers and businesses are spending more on cars, machinery and other goods, pushing up factory output. A gauge of production rose to its highest level in three months in March.

Consumers increased their spending in February by the most in seven months, the government said Friday. That is raising expectations the economy will grow a bit faster in the current quarter.

Consumer spending on long-lasting goods, such as cars and computers, rose 1.6 percent in February. That suggests manufacturers will have to increase output to meet higher demand.

Businesses also ordered more durable goods in February, after a steep drop the previous month, a separate report last week showed. Durable goods are meant to last at least three years. Greater demand for machinery, computers, autos and aircraft drove the increase.

Orders for so-called "core" capital goods, a key measure of business investment plans, also rose. They had fallen in January by the most in a year, after an investment tax credit expired.

Manufacturing has been a key source of economic growth since the recession ended in June 2009. The sector has expanded for 32 straight months, according to the ISM's index.

A recovery in auto sales has been a big reason for the strength in manufacturing. Americans delayed auto purchases during the recession, pushing the average age of U.S. cars to record highs. That led to sharp increases in car sales as the economy recovered.

More auto manufacturing boosts output in an array of industries, including steel, tire makers, and other parts suppliers.

Rising factory output is helping the broader economy grow. Growth increased to a 3 percent annual rate in the final three months of last year, up from 1.8 percent in the previous quarter.

Many economists expect growth will slow in the current quarter because companies aren't likely to restock their shelves as much as they did in the fourth quarter. But after Friday's report on consumer spending, some analysts are boosting their estimates for growth in the January-March quarter to 2.5 percent, from 2 percent.

Associated Press

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