Manufacturing Worsens, While Construction Improves

U.S. factory activity contracted in December, ending 10 consecutive months of expansion, with activity falling to its weakest since April 2003, according to an industry report released Wednesday.

Meanwhile, construction spending unexpectedly rose 0.1 percent in November despite ongoing
housing market woes that pushed private home building down 2.5 percent -- the sharpest drop in nearly six years, a Commerce Department report showed.


The Institute for Supply Management said its index of national factory activity fell to 47.7 in December from 50.8 in November, below economists' median forecast for a reading of 50.4. A reading below 50 indicates contraction in the sector.

New orders, a gauge of future growth, fell sharply to 45.7 last month -- its lowest since October 2001 -- from 52.6 in November.

The December employment index rose slightly to 48.0 from 47.8 in November, while the ISM prices paid index, which measures inflationary pressures within the factory sector, rose
to 68.0 in December from 67.5.

U.S. stocks fell sharplyfollowing the report, while U.S. Treasury debt prices surged.

"It was a severe drop that seems to have been driven by declines in the most important component: orders," said Pierre Ellis, senior economist at Decision Economics in New York.

"Confidence that export- and investment-led growth will help the economy going forward will be weakened considerably by this report," Ellis said.

Economists polled by Reuters expected construction spending in November to fall 0.4 percent. November's increase to a $1.165 trillion seasonally adjusted annual rate came after a revised 0.4 percent decline in October, first estimated as a 0.8 percent decline.

Private home building fell to a $484.9 billion rate in November, the lowest since August 2003. This sector has fallen for 21st consecutive months since a peak in home building in
February 2006.

Despite the housing slump, private non-residential construction rose 1.7 percent to a record annual rate of $375.8 billion.

Public construction, too, rose in November with state and local government building up 2.5 percent while federal construction was up 2.2 percent.