WASHINGTON -- The manufacturing sector of the economy strengthened in April, registering the seventh gain in eight months, rather than weakening slightly as many analysts had expected, a private research group reportedly yesterday.
The National Association of Purchasing Management said that its index of overall manufacturing activity gained one percentage point to 57.7%. It was the eighth straight month the index has exceeded 50%, the level which indicates the sector is expanding.
Economists said they were mildly surprised that manufacturing did not slow somewhat in April after two quarters of robust activity. "It was a bit more powerful than I expected," said Sam Kahan, chief economist of Fuji Securities Inc. in Chicago.
Kahan said the report showed that economic growth is not decelerating from the unsustainable 7% rate of the fourth quarter of last year as quickly as he had anticipated.
Analysts said yesterday's report is an early indication that the economy will probably muster 3% to 4% growth in the second quarter. This, they said, is more in line with the underlying strength in the economy than the government's advance estimate of 2.6% growth in the first quarter.
"There's nothing to complain about on the manufacturing front," said Russell Sheldon, senior economist at Mellon Bank.
Sheldon anticipates continued strength in manufacturing coupled with a rebound in construction activity following a slump in the first quarter due to bad weather. The combination, he predicted, could push second-quarter growth well above 4%.
Among the most closely watched components of the index, new orders were unchanged and production declined slightly, the purchasing manager's group reported. This was offset by gains in employment, export orders, and inventory accumulation, among other things.
The employment index edged above the 50% mark in April for the first time in more than five years, the group noted.
Production has reached a point where companies are forced to hire new workers rather than merely increase overtime hours, Sheldon said. "Factory employment is finally showing some signs of cyclical improvement," he said.
In addition, the commodity price index for April showed that growth in commodity prices slowed for the second straight month. In January and February, the index agitated inflation fears by surging to its highest level in more than three years.
"At this stage of the cycle, this is good news," said Kim Rupert, senior economist at MMS International. Rupert and other analysts predicted stable inflation for at least the next six months. "The inflation outlook remains quite good," she said.
Also yesterday, the Commerce Department reported that construction spending in March increased 0.8%, falling short of market expectations of about a 2% gain. Spending fell 1% in February.
Gains in private construction more than offset declining public construction spending.
Private construction spending grew 2%, as residential building gained 1.5%, helped by a 2.2% increase in single-family homes; non-residential construction spending grew 3.8%. Public construction spending fell 2.7%, its third straight decline.
Construction spending was up 9% in March compared to a year ago.