Growth in Industrial Economy Slows

Growth slowed for the nation’s industrial economy in October, while prices of raw materials soared to a four-year high, the National Assn. of Purchasing Management reported Monday.

The data suggest that the Federal Reserve’s two interest rate increases this summer are restraining economic growth, said analysts, who blamed rising oil prices for most of the increase in the cost of manufacturing supplies.

The figures are likely to be scrutinized by Fed policymakers, who meet Nov. 16 to decide whether to raise interest rates again to head off a resurgence in inflation.

The purchasing managers’ report is watched closely because it is the first national reading for October on U.S. manufacturing performance, a key sector of the economy. Among other things, the latest report indicated manufacturers are building up inventories as insurance against possible Y2K disruptions.

The index, based on a national survey of executives who buy raw materials and other supplies for industry, slipped to 56.6 in October from 57.8 the previous month. Analysts had predicted the index would register 56.3.

A reading of more than 50 indicates an expanding industrial economy. The survey marked the ninth consecutive month of manufacturing growth.

The price index, meanwhile, advanced to 69.4 from 67.6 in September, rising to the highest level since it was at 70.5 in May 1995.

Analysts said the rise in prices was largely the result of higher oil costs following production cuts by the Organization of Petroleum Exporting Countries and was not a cause for alarm.

Gary Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis, also said that manufacturers were finding it difficult to pass on the higher costs to customers because of strong competition from imports and growing Internet commerce.

In a separate report, the Commerce Department said that construction spending jumped 0.5% in September, despite higher mortgage rates and a hurricane on the East Coast, as an increase in spending for big government projects more than offset a decline in spending on private-sector construction. Analysts had forecast a drop of 0.2%.

Construction spending rose to a seasonally adjusted annual rate of $700.1 billion, following a sharp 0.8% decline in August, the department said.