updated 1/3/2005 12:11:01 PM ET 2005-01-03T17:11:01

Manufacturing activity expanded for the 19th consecutive month in December, a research group reported Monday, suggesting that the industrial sector entered the new year with solid strength behind it.

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The Institute for Supply Management said that its main index measuring industrial activity rose to 58.6 in December from 57.8 in November. The December performance was slightly more robust than analysts had anticipated.

A reading of 50 or above in the index means the manufacturing sector is expanding, while a figure below 50 represents a contraction. The index has been 50 or above since May of 2003, according to revised figures.

Norbert J. Ore, chairman of the institute’s survey committee, said the December results were “driven by a significant increase in the new orders index.”

He added that the strong finish for 2004 meant that manufacturing had “significant momentum gong into the first quarter of 2005.”

Construction spending dips
Separately, the Commerce Department reported that construction spending declined 0.4 percent in November, the first drop in 10 months, as private builders reined in spending on residential and commercial projects.

The figures surprised some economists, who were forecasting a 0.5 percent rise in spending on building projects.

Still, even with the drop, the level of spending — $1.01 trillion on an annualized basis — was quite healthy. And, construction activity in October turned out to be significantly stronger than initially thought. Revised figures showed that spending in October rose by 0.3 percent, compared with a flat reading first reported.

The drop in construction spending contributed to the dip in the market. In midday trading, the Dow Jones industrial average was down 3.86 at 10,779.15.

The manufacturing activity report from the Tempe, Ariz.-based research group is watched closely by the markets because it is the first published data on economic activity for the month of December.

The institute’s price index eased a bit in December to a reading of 72 from 74 in the previous month.

On the price reading, Ore said that “while there is continuing upward pressure on prices, the rate of increase is slowing and definitely trending in the right direction.”

New orders increased to 67.4 in December from 61.5 in November, while new export orders expanded to 60 in December from 54.7 the month before.

Production was off a bit in December at 56.9 compared with 57 in November, and the employment reading dropped to 52.7 in December from 57.6 in November.

Manufacturing recovery 'alive and well'
Anthony Chan, managing director and senior economist at JPMorgan Fleming Asset Management in Columbus, Ohio, said the advance in new orders “is very, very encouraging because it suggests that the manufacturing sector’s recovery remains alive and well.”

He said that the drop in employment — which would generally be pushed up as orders increase — might reflect “a temporary jump in productivity” in manufacturing, which is not unusual at this point in the business cycle.

Chan said that the report overall “is telling me that the manufacturing sector, one of the most cyclical, is positive, which bodes well for the overall economy in 2005.”

The monthly report is compiled from surveys of purchasing and supply executives at more than 400 industrial companies. The survey includes data on supply shortages and price changes in a number of basic materials used in manufacturing, such as aluminum, latex, oil, steel and rubber.

The report indicated growth in 14 of the 20 manufacturing categories tracked by the survey, including leather, computers, furniture, food, transportation and equipment, primary metals, chemicals, apparel and textiles.

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