Posted on: Tuesday, May 4, 2004

Manufacturing strong despite rising cost

By Lisa Singhania
Associated Press

NEW YORK — The rising cost of materials put a damper on manufacturing activity in April, according to an industry survey released yesterday. But analysts say the economic outlook is still quite strong, noting that construction spending registered its best month on record in March.

The Institute for Supply Management said its manufacturing index slipped to 62.4 in April from 62.5 in March. The new reading was below the expectations of analysts, who had forecast a reading of 62.7.

The ISM said the economy is growing, but companies responding to its survey said that higher prices of certain commodities, such as aluminum and steel, were causing some difficulties. The ISM's prices index came in at 88 percent, 2 percentage points higher than in March. It was the 26th consecutive increase for the index — and the highest it has been since April 1979.

Still, analysts weren't too worried, saying the risk of inflation remains slight. They focused more on the manufacturing index, which is still well above 50. Any index reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is contracting.

"The (manufacturing) index is still at a very high level, and this was an insignificant change," said Alexander Paris, economist and market analyst for Chicago-based Barrington Research who is hopeful the cost of materials has peaked.

"Anything over 60 indicates an extremely high level of activity, and this shows you manufacturing is still growing at a fairly fast rate," he said, noting this is the sixth consecutive month the manufacturing index has come in above 60.

That optimism was bolstered by a separate Commerce Department report yesterday that found construction activity jumped 1.5 percent in March to a seasonally adjusted annual rate of $944.1 billion, the highest level on record.

The performance was three times bigger than the 0.5 percent increase that some economists were calling for and the gains were fairly broad. The report also provided further evidence that the construction and housing markets are in good shape. The value of residential projects being worked on by private builders hit an annual rate of $507.2 billion in March, also an all-time high.