The U.S. manufacturing sector expanded in March at its strongest pace in 5 1/2 years, leading the rebound from the recession on growth in exports and inventory rebuilding. Another drop in construction spending in February, however, underscored weakness in real estate.
Meanwhile, the number of people filing first-time claims for unemployment benefits slipped last week as the economy moves closer to generating more jobs.
The Institute for Supply Management, a trade group of purchasing executives, said its gauge of industrial activity rose to 59.6 in March from 56.5 in February. It is the eighth straight month of expansion and the fastest growth since July 2004, when the index was 59.9.
Economists polled by Thomson Reuters had expected a reading of 57. A level above 50 indicates growth.
Factories are boosting production for exports and their customers are slowing the drawdown of their inventories, helping power the economic recovery worldwide.
Manufacturers said their inventories grew after 46 straight months of contraction, according to ISM. Letting inventories rise is a signal that companies expect factory activity and orders to increase.
Manufacturing surveys Thursday in China, Britain and the 16 countries using the euro all showed factory activity surging.
"The export-orientated factory sector is evidently enjoying the benefits of the rebound in world trade, whereas other sectors more dependent on domestic sales are still struggling," Paul Ashworth, U.S. economist at Capital Economics, said in a research note.
Seventeen of the 18 industries that the ISM surveys reported growth last month, led by the apparel sector. Only makers of plastics and rubber products reported contraction.
But even as export-oriented activities strengthened, weakness persisted within the U.S. construction market.
The Commerce Department said construction spending fell 1.3 percent in February to a seasonally adjusted annual rate of $846.23 billion. That was the lowest level since November 2002 and the fourth straight month of decline.
Economists were predicting builders would pare spending by 1 percent.
The housing market led the country into a recession and despite some improvements at the end of last year, the sector this year is showing fresh signs of weakness.
"The construction sector continues to be a weight on the broader recovery and there are few indications this decline is reaching a bottom," said U.S. economist Julia Coronado of BNP Paribas.
Even as manufacturing recovers, ISM's employment index grew slightly less slowly in March. The construction and manufacturing sectors have together lost about 4 million jobs during the recession.
Still, the jobs market is improving. The Labor Department said Thursday that new jobless benefit claims dropped 6,000 to a seasonally adjusted 439,000 last week, nearly matching analysts' estimates. It's the fourth drop in five weeks.
The four-week average of claims, which smooths volatility, fell by nearly 7,000 to 447,250, the lowest total since the week of Sept. 13, 2008, just before Lehman Brothers collapsed and the financial crisis intensified.
The report adds to evidence that the job market is slowly healing as the economy improves.
The government is scheduled to release a report on March employment Friday. Economists expect the unemployment rate to stay at 9.7 percent, while employers added 190,000 jobs, the most in three years and only the second gain since the recession began.
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