Factories Post Strong Growth

U.S. manufacturing expanded in October at the second-fastest pace this year and factory costs unexpectedly accelerated, helping to justify the Federal Reserve’s plan to continue raising interest rates.

The Institute for Supply Management said Tuesday that its factory index was 59.1 last month, compared with 59.4 in September, the highest in 13 months. Readings above 50 indicate growth.

Construction spending rose for a third straight month in September, led by the biggest rise in home building since February, the Commerce Department said Tuesday. Spending on construction projects rose 0.5% to a record annual rate of $1.12 trillion, after a 0.6% increase in August.

Economists expected the institute’s factory index to fall to 57.2, according to the median of 69 estimates in a Bloomberg survey. The reading compares with this year’s average of 55 and the 52.4 average of the last 10 years.

Business investment in new equipment, along with falling inventories and rebuilding after Hurricane Katrina, point to sustained demand, economists said.

The institute’s prices paid index rose to 84 from 78 in September. It was expected to fall to 75, based on the the median estimate in the Bloomberg survey.

The hurricanes disrupted production and delivery of supplies, driving prices higher, said Norbert J. Ore, chairman of the group’s factory survey panel.