Gains Reported in Construction, Manufacturing : Economy: Some analysts say Friday’s unemployment report will be the real measure of the recovery’s strength.
The nation’s economy, whose twists and turns have kept analysts guessing all summer about its direction, showed solid gains Tuesday in the important manufacturing and construction sectors.
But some economists say employment figures to be released Friday will give a clearer indication of whether the recovery from recession has firmly taken hold.
In the strongest report Tuesday, the National Assn. of Purchasing Management said activity in the manufacturing sector climbed to 54.8% from 51.8% in July. When the index exceeds 50%, it generally indicates that the manufacturing economy is expanding.
“The economic recovery galvanized in August,” said Robert Bretz, chairman of the association’s Business Survey Committee.
The monthly purchasing managers survey, which followed a series of conflicting economic reports last week, coincided with positive news from the government that construction spending rose in July. The Commerce Department reported that spending on new construction rose 1.6% in July, the first increase in three months.
The purchasing manager’s index, compiled from a survey of executives at more than 300 industrial companies, is closely followed as an indicator of the performance in U.S. manufacturing as well as the strength of the overall economy.
The index was boosted by a surge in orders for new business in August, the fourth straight monthly gain in that category. That could lead to stronger production levels in the coming months. Production grew moderately in August for the third straight month.
The purchasing managers reported that imports by industrial firms, which had fallen for 15 consecutive months, improved in August, another sign that the economy is gaining strength.
Employment levels at industrial firms continued to decline, but at the lowest pace in the last year, the trade group said. Employment tends to improve only after other indicators, including production, have regained strength.
The August report, the seventh consecutive monthly increase, was higher than what most analysts had expected. But some experts weren’t ready to celebrate the improvement.
“The jury is still out” on the economy, said Daryl Delano, senior economist for Cahner Economics in Newton, Mass.
He is especially skeptical of the improvement in construction, noting that the government revised June’s 0.3% increase to show a decline instead.
Overall, residential, non-residential and government spending totaled a seasonally adjusted annual rate of $404.9 billion, up from $398.7 billion a month earlier, according to the Commerce Department report.
Spending in June actually fell 0.1% rather than posting a 0.3% gain as was initially estimated a month ago. That made the July increase the first since a 1.0% advance in April.
Residential spending rose 2.2%, to $161.9 billion, its third consecutive monthly increase. But the gain was entirely in the single-family sector, which jumped 5.1% to $96.7 billion--also the third straight increase.
The latest economic statistics follow data released last week that showed a sharp drop in new home sales and a decline in personal income in July. For the first time in six months, Americans’ personal incomes decreased--by 0.1%--to a seasonally adjusted annual rate of $4.81 trillion. And new home sales declined 8.5% to a seasonally adjusted annual rate of 472,000.
Delano said national employment statistics, scheduled to be released Friday by the Labor Department, may give a better picture of the health of the nation’s economy.
“If that report is extremely weak or shows a decline in employment, that will be of great concern,” he said. “But if the employment numbers move up, that would be important confirmation that these (manufacturing and construction) figures are on target.”
Most economists agree that the recession has now ended and that the recovery is proceeding, but much slower than anticipated.
“We are close to the turn around and . . . there is always a very mixed picture of the economy that emerges” at this juncture, said Victor Zarnowitz, an economics professor at the University of Chicago.
Associated Press and Reuters contributed to this report.
Purchasing Managers Index August, 1990: 47.4% August, 1991: 54.8% The purchasing managers’ Index tracks overall business activity at 300 Industrial companies. Source: National Assn. of Purchasing Management
Construction Spending Billions of dollars, seasonally adjusted July, ‘91: 404.9 June, ‘91: 398.7 July, ‘90: 453.1 Source: Commerce Department
