updated 5/1/2007 1:12:49 PM ET 2007-05-01T17:12:49

The nation’s manufacturing sector showed surprising strength in April, growing at a faster-than-expected pace and pushing up prices for fuel, metals and corn-based products, a trade group said Tuesday.

Major Market Indices

The Institute for Supply Management, based in Tempe, Ariz., said its manufacturing index registered 54.7, above the March reading of 50.9 and Wall Street’s expectation of 51. It was the highest reading in 11 months, when it also registered 54.7.

A reading above 50 indicates growth for the sector, while a reading below 50 indicates contraction.

A sharp spike in the prices paid index fueled ongoing concerns over inflation and interest rates.

The index surged to 73 in April, compared to 65.5 the previous month. Prices rose for commodities including gasoline, aluminum, corn, diesel fuel and steel. No commodities fell in price, the report said.

The prices paid index reached 78.5 in July of last year, but had fallen to 47.5 by December.

“So it’s quite a sharp change,” said Nigel Gault, economist with Global Insight.

Even though the U.S. economy has been fairly sluggish, the steep climb in prices shows the global economy is still holding up well and manufacturers are facing steeper costs, Gault said. Higher fuel prices also contributed to the spike.

“The question always is, to what extent do higher prices paid get passed on to the consumer? And how does that affect the inflation numbers the Fed is looking at?” Gault said.

The Federal Reserve, which meets May 9, is expected to keep interest rates unchanged as it has since August. Robust manufacturing activity is good for many U.S. companies, but it also means the Fed is less likely to loosen credit policy to boost spending — especially amid rising inflation.

The overall economy grew for the 66th consecutive month. Growth in the manufacturing sector was driven by new orders, production and employment.

The new orders index in particular surged to 58.5 in April, compared to 51.6 the previous month.

“If businesses were cutting back sharply on investment spending, orders wouldn’t be bouncing higher,” Gault said.

Among the top performing industries in April were wood products; apparel, leather and allied products; food, beverage and tobacco; miscellaneous manufacturing; machinery; chemical products; transportation equipment and computer and electronic products.

The ISM’s manufacturing sector index has bounced above and below the break-even point of 50 for several months, indicating the overall economy’s uncertain path. It showed contraction in November, rebounded in December, fell back again in January, then expanded the following two months.

Amid the mixed economic signals recently, inflation remains an ongoing concern. A closely watched inflation gauge tied to the gross domestic product report last week showed core prices rose at a rate of 2.2 percent in the first quarter, up from 1.8 percent in the fourth quarter.

The GDP itself grew a tepid 1.3 percent, its weakest in four years.

The ISM report showing rapidly rising prices and data showing a weak housing market unnerved investors.

In late morning trading, the Dow rose 33.49, or 0.26 percent, to 13,096.40.

Broader stock indicators were lower. The Standard & Poor’s 500 index fell 0.35, or 0.02 percent, to 1,482.02, and the Nasdaq composite index was off 3.05, or 0.12 percent, to 2,522.04.

Although the job market remains relatively healthy, the National Association of Realtors on Monday said pending sales of existing homes fell by 4.9 percent in March to their lowest point in four years.

On Monday, the Commerce Department said that core inflation, as measured by personal consumption spending, was up 2.1 percent for the past 12 months ending in March — lower than the 2.4 percent rise in the 12 months ending in February. If inflation eases, the Fed is more likely to cut interest rates.

Personal spending also increased just 0.3 percent in the 12 months ending in March.

The Commerce Department reports Wednesday on factory orders, which the market is expecting to have risen 1.0 percent in March, after a similar gain the previous month. On Thursday, the department releases its measure of worker productivity. The Labor Department on Friday will report on unemployment and nonfarm jobs.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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