Home Construction Spending Increases

Manufacturing strengthened in August after three months of contracting, a hopeful sign the economy is improving.

Investors cheered the gain in manufacturing activity but were somewhat disappointed by a government report showing construction spending fell 0.7% in August.

The number was pulled lower by declines in commercial construction spending. Housing activity did post solid gains in August, the Commerce Department said Monday.

On the manufacturing front, the Institute for Supply Management, a trade group of purchasing managers, says its index of factory activity rose to 51.5. That’s up from 49.6 in August. A reading above 50 signals growth and below 50 indicates contraction.

The index had been below that threshold from June through August. A measure of employment also increased, suggesting manufacturers added workers last month.

Manufacturing has been a bright spot in the U.S. economy since the recession ended in June 2009. But it had slowed since the spring as consumers and businesses have reined in spending and exports have slowed.

In a separate report, builders trimmed their activity for a second straight month in August as a solid gain in home construction failed to offset declines in nonresidential activity and government projects.

The Commerce Department says overall construction spending dipped 0.7% in August, compared to July. In July, spending had fallen 0.4%.

The August decline left spending at a seasonally adjusted annual rate of $837.1 billion, which is 12.2% above a 12-year low hit in February 2011. Still, construction activity is roughly half of what economists consider to be healthy.

One bright spot in the August report was a 0.9% increase in private residential construction, another sign that housing is recovering following a prolonged slump. In August, both single-family and apartment construction was up.

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