WASHINGTON -- The manufacturing and construction sectors are continuing to strengthen, helping to put the economy on a solid growth track, according to another batch of statistics released yesterday.
"The bond guys hate it, but the bond market may finally have to make that awful transition to an economy that is not faltering after several false starts," said Robert Dieli, an economist with Northern Trust Co. in Chicago.
"More and more people are saying it looks like the economy has broad-based momentum," said Mickey Levy, chief economist for NationsBank.
Both analysts said they expect that real gross domestic product will grow by around 4% in the final three months of the year, up from a revised gain of 2.7% in the third quarter reported yesterday by the Commerce Department. The increase was little changed from the initial estimated gain of 2.8% issued last month by the government.
But other reports yesterday added to the evidence that the economy is continuing to gather strength.
The National Association of Purchasing Management's index for November, the first statistical peak at the month, rose to 55.7% from 53.8%. The pin marked the second straight monthly reading over 50%, which is the level that must be exceeded to signal an expanding manufacturing sector. It was also the highest level reported since February.
The new orders component of the index jumped to 64.8% from 60.8%, and order backlogs were up for the fourth straight month. New export orders, despite the recessions in Europe and Japan, increased slightly to 55.3%, the highest level in more than a year. The production index rose for the fifth straight month to 59.3% on growth in a number of industries.
Other components in the report suggested that inflation remains in check. The price index was 48.4%, meaning that slightly more than half of the manufacturing firms surveyed said prices were declining. The employment index increased but still produced a reading of 46.1%, below the 48% level viewed as consistent with an increase in hiring.
"We're seeing clear evidence of a healthy pickup in economic growth that will not generate increases in unit labor costs or inflationary pressures," Levy said.
While the bond market has been selling off recently on fears of faster growth, cost-cutting moves by business to increase productivity and keep down labor costs are likely to continue, said Levy. The latest drop in world crude oil prices should also help to slow inflation, he said.
The Commerce Department figures showed price pressures remained benign in the third quarter. The implicit price deflator rose only 1.6% while the fixed-weight index for gross domestic purchases, another measure of inflation, was UP 1.8%.
A separate report from the Commerce Department said construction spending increased 2.5% in October, the sixth straight monthly rise after a revised gain of 1.5% in September. The last time the government reported a string of six consecutive pins in construction spending was in 1986, a department spokesman said.
The figures were consistent with other reports showing that builders are picking up business with the help of low interest rates. Outlays for residential buildings rose a solid 3.1% in October, boosted by a surge of 4.1% in spending for single-family homes. Public spending was also strong, rising 3.7% after an increase of 2.7% in September.
One sour note in yesterday's batch of statistics was on the trade front. While the GDP report showed that U.S. output rose $33.7 billion, net exports of goods and services shrank by $12.1 billion. Dieli estimated that GDP would have gone up 3.6% instead of 2.7% without the deterioration in trade.
A separate report from the Commerce Department said that the merchandise trade deficit on a balance of-payments basis swelled to $36.3 billion in the third quarter as imports rose 0.5% and exports fell 1.1%. The figures exclude military trade and make adjustments to the monthly merchandise trade figures.
For the first nine months of the year, the United States recorded an annualized trade pp of $133.3 billion, up from the $96.1 billion deficit recorded last year. The figures do not include trade in services and investment flows, which provide the broadest measure of U.S. trade performance on a current account basis.