updated 5/2/2011 11:50:16 AM ET 2011-05-02T15:50:16

Manufacturing activity grew for the 21st straight month in April, fueled by a weak dollar that has made U.S. goods cheaper overseas. But the cost of raw materials rose for the fifth consecutive month, a growing concern for many companies.

The Institute for Supply Management, a trade group of purchasing executives, said Monday that its index of manufacturing activity dipped to 60.4 in April. That's down slightly from March and February, the fastest month for expansion in nearly seven years. A reading above 50 signals growth.

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Since the beginning of the year, manufacturing has grown at the fastest pace in 27 years, said David Resler, an economist at Nomura Securities. The index has topped 60 for four straight months, evidence that manufacturing remains one of the strongest components of the economy. The index bottomed out during the recession at 33.3 in December 2008, the lowest point since June 1980.

"This is another solidly encouraging report from the manufacturing sector," Resler said in a note to clients. "That sector's growth will help keep the economic expansion on a moderate ... growth trajectory."

Factory growth also helped lift construction spending in March. The 1.4 percent rise followed three monthly declines and was the biggest gain since April, the Commerce Department said. A 5.5 percent increase in spending on factory expansion and construction drove commercial construction spending gains. Growth in home-improvement projects lifted residential construction.

Factories have benefited from growing overseas demand for machinery and other goods. And U.S. consumers have spent more this year on autos, appliances and computers

Export orders rose sharply last month, the ISM survey found. The dollar has fallen 8 percent this year against a basket of six other currencies. A major reason for the weak dollar is the Federal Reserve has kept short-term interest rates at record low levels near zero. Other central banks overseas have begun to increase interest rates to ward off inflation, which makes their currencies more attractive to investors seeking higher returns.

U.S. companies are coping with a steep rise in commodity prices. The survey's prices paid index rose to the highest level in nearly three years. Aluminum, chemicals, corn, oil, plastics and steel were all reported to be more expensive than the previous month.

Many companies are hesitant to pass along the added costs to the consumer, who is coping with 8.8 percent unemployment and slow job growth. Instead, the higher prices are squeezing profit margins. One company in the food processing industry said that higher raw material costs are "putting extreme pressure on profits," according to the trade group's report.

Separate measures of new orders and production both topped 60 for the fifth straight month, though they both declined in April compared to March. The employment index also dipped but showed that manufacturers are still adding jobs. The employment index has risen in the past four months at the fastest pace in 38 years.

Norbert Ore, chairman of the ISM's survey committee, said there was little sign of any impact from the huge earthquake and tsunami in Japan on March 11. Some companies said electronic components, many of which are manufactured in Japan, were in short supply in April, but Ore said that concern existed before the disaster.

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