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Manufacturing gains steam

Sector keeps momentum; construction spending rises

NEW YORK -- US manufacturing activity expanded for the 12th consecutive month and construction spending rose to its highest level ever, signaling that the economy is picking up steam as it heads into summer.

The Institute for Supply Management said yesterday that its manufacturing index advanced to 62.8 in May from 62.4 in April. The latest reading was the highest since 63.6 posted in January and was well above the 61.5 that analysts had expected.

An index reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is contracting. The gauge has been above 50 since June of last year.

In Washington, meanwhile, the Commerce Department said construction spending registered its best month on record in April. The value of buildings put in place rose 1.3 percent in April from March to a seasonally adjusted annual rate of $970.4 billion, the department said.

The strong showing comes on top of a red-hot March, when construction spending jumped by 2.4 percent. That increase pushed the value of all construction projects in March to a rate of $957.6 billion, which had been the previous all-time high.

The reports suggest that the economy, which grew at a healthy 4.4 percent rate in the January-March quarter, is in solid shape in the current quarter.

Against that backdrop, a growing number of economists believe the Federal Reserve will boost short-term interest rates for the first time in more than four years at its next meeting June 29-30. The Fed's key short-term rate is now at a 46-year low of 1 percent, where it has been since last June.

The stock market closed higher as the strong economic reports outweighed investor concerns about rising oil prices.

The Dow Jones industrial average rose 14.20, or 0.1 percent, to 10,202.65. The Standard & Poor's 500 index was up 0.52 at 1,121.20. The Nasdaq Composite index gained 4.03, or 0.2 percent, to 1,990.77.

Norbert J. Ore, who heads the supply management group's survey committee, said the manufacturing sector ''grew at a faster rate in May, continuing its recent strong performance."

He noted that the rate of growth in the closely watched categories of new orders and production ''slowed slightly," but added that this ''was offset by a significant increase in employment."

The employment index showed growth for the seventh consecutive month with a 61.9 reading in May, the highest since it hit 62.6 in April 1973, according to the group, which is based in Tempe, Ariz. The employment reading in April had been 57.8.

An employment index reading over 48 generally predicts an increase in the Labor Department data on manufacturing employment.

The Labor Department will release its job figures for May on Friday. Analysts expect the unemployment rate to remain at 5.6 percent, and they are counting on nonfarm payrolls -- government and private employers -- to add 215,000 jobs.

The unemployment rate fell to 5.6 percent in April from 5.7 percent in March as businesses added 288,000 jobs.

Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C., said that ''the sudden burst in economic activity in the early part of 2004 caught a lot of producers by surprise."

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