NEW YORK - U.S. manufacturing grew at a quicker pace in December as more factories reported a rise in orders and exports, a sign the economy strengthened heading into 2005.
The Institute for Supply Management said yesterday that its purchasing managers index of factory orders rose to 58.6, from 57.8 in November, reaching the highest point since August.
The gauge has shown expansion - marked by readings greater than 50 - since June 2003.
For the year, the factory orders index averaged 60.5 - the highest yearly average since 65.9 in 1973. Stronger U.S. sales left businesses with fewer goods on hand, while foreign companies snapped up more U.S.-made products as the 5 percent drop in the dollar made American goods cheaper overseas.
"The economy was accelerating at the end of the year and into the new year," said Robert E. Mellman, an economist at J.P. Morgan Securities Inc. Falling oil prices "are raising real income of consumers and making business a little less cautious," he said.
A separate Commerce Department report showed that construction spending fell unexpectedly by 0.4 percent in November from a record pace as fewer homes were built and wet weather delayed projects. The median forecast was for a 0.4 percent increase in November.
The decline to an annual pace of $1.013 trillion appears to support expectations that housing may contribute less to gross domestic product this year.
Construction's contribution to economic growth "is diminishing considerably and should start subtracting from GDP in 2005," predicted Michael R. Englund, chief economist at Action Economics LLC in Boulder, Colo.
The decline came after a revised 0.3 percent gain in October that was higher than originally reported.
The dollar advanced against the euro yesterday, rising to $1.3470 from $1.3554 on Dec. 31. It earlier reached $1.3387, the highest in more than a week. The yield on the benchmark 10-year Treasury note due November 2014 was unchanged at 4.21 percent in New York.
To compile its factory index, the Supply Management Institute surveys more than 400 companies in 20 industries, including printing, transportation, furniture and plastics.
The institute's index of new orders surged to 67.4, the highest level since January 2004, from 61.5 in November. Consumer spending rose in October and November after increasing at the fastest pace in almost three years in the third quarter.
The institute's production index, a gauge of work being performed, was little changed at 56.9 after 57 in November.
The institute's index of prices paid for raw materials declined to 72 last month from 74 in November. The report showed higher commodities prices were the biggest concern among manufacturers, who have shed 1.57 million jobs since the last recession ended in November 2001 in part to help control costs. The institute's employment index dropped to 52.7 last month from 57.6.
On Friday, the Labor Department is expected to report an increase of 5,000 factory jobs in December, economists said. Manufacturers added 76,000 jobs in the first 11 months of 2004.
The Supply Management Institute's inventory index rose to 53.4 from 50.7, indicating stocks are being rebuilt at a faster pace. The institute's backlog-of-orders index rose to 54 from 47.5. The export orders index rose to 60 from 54.7. The supplier deliveries index, which measures how long it takes to get materials, fell to 54.9 from 56.5.
Rising inventories have barely been able to keep pace with demand. As of October, the latest figures available, businesses had stocked enough goods to meet 1.3 months of demand at the current sales pace.
