Economy up slightly but threats remain, data show

AP News
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Posted: Oct 03, 2011 12:17 PM
Economy up slightly but threats remain, data show

The nation's economy is managing to grow modestly, reports Monday showed, despite high U.S. unemployment and growing alarm about Europe's debt crisis.

Manufacturing expanded in September more than in August, though the pace of growth remains weak, according to a survey by the Institute for Supply Management. The ISM said its manufacturing index rose for the first time in three months.

And construction spending rose modestly in August, the government said. The gain was due mostly to a pickup in state and local government projects.

In addition, U.S. auto sales rose in September, largely because consumers bought more pickups and SUVs, U.S. automakers said.

Collectively, the reports suggested that the U.S. economy may be able to avoid another recession yet will continue to struggle.

Economists said the manufacturing and construction reports are consistent with an annual growth rate of about 2 percent to 2.5 percent for the July-September quarter.

That would be an improvement from growth of about 0.9 percent in the first six months of the year. But it wouldn't be enough to reduce the unemployment rate, which is 9.1 percent.

The reports are "mildly encouraging," said Paul Ashworth, chief U.S. economist at Capital Economics. "But even if the U.S. avoids a recession, economic growth is going to remain lackluster."

Manufacturing executives said their volume of new orders shrank for the third straight month. That doesn't bode well for future production.

Stocks initially declined, partly because Greece said earlier Monday that it would miss deficit-reduction targets it had agreed to as part of its bailout agreement. That raised worries that Greece could default on its debts, harming Europe's economy.

The ISM's manufacturing index rose to 51.6, up from 50.6 in August. A reading above 50 indicates expansion. The increase follows two months of declines.

Measures of production and exports grew, while a gauge of new orders was unchanged. Factories also added workers, the report said. The ISM is a trade group of purchasing executives.

The manufacturing sector has been a key driver of the economy's growth since the recession officially ended in June 2009. The index topped 60 for four straight months earlier this year. It rose above 50 a month after the recession ended and has topped that level ever since.

But manufacturing accounts for only about 11 percent of the economy and can do only so much to support the recovery. And manufacturing has slowed in the past several months as consumer spending has weakened in response to high unemployment and stagnant wages. High gas and food prices are also forcing shoppers to cut back in other areas.

Respondents to the survey expressed "concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment," said Bradley Holcomb, chair of the ISM's survey committee.

The report follows other indicators that show the economy is sputtering though still growing. Companies ordered more machinery, computers and other equipment in August, a government report last week showed.

Twelve of the 18 manufacturing industries tracked by the ISM reported growth in September. They include food and beverages; clothing; autos and other transportation equipment; and chemicals. Furniture, paper products, and electrical equipment were among those that contracted.

Construction spending rose 1.4 percent in August, the Commerce Department said. The increase followed a 1.4 percent drop in July, which had been the biggest setback in six months.

Analysts noted that much of the increase stemmed from a jump in spending on government projects, such as roads and schools. But with many states and cities short of cash, gains of that size aren't expected to continue.

And private construction is still not healthy.

"The pickup in the pace of spending was ... not a sign of revival in private demand," said John Ryding, an economist at RDQ Economics, in a note to clients.

Building activity reached a seasonally adjusted annual rate of $799.1 billion. That's 4.8 percent above an 11-year low hit in March. But it's barely more than half the $1.5 trillion pace considered healthy.