United States mfg expands unexpectedly

Manufacturing in the US expanded at a faster pace than forecast in August as factories added workers and cranked up production.

The Institute for Supply Management’s factory index rose to a three-month high of 56.3 from 55.5 in July, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth, and the figure was projected to drop to 52.8, according to the median forecast in a survey.

Stocks rallied as US and China manufacturing figures tempered concern the global economic recovery will wane without more government stimulus. Production gains may partially compensate for a slowdown in consumer spending and sluggish housing market that are causing the world’s largest economy to cool in the second half of the year.

Manufacturing is “one of the bright spots,” said Hugh Johnson, chief investment officer at Hugh Johnson Advisors LLC in Albany, New York, the only analyst surveyed to predict the index would rise. Still, “you have to have increased demand from consumers and businesses for these numbers to be sustained.”

The Standard & Poor’s 500 Index gained 2.8 per cent to 1,078.44 at 12.05 pm in New York. The yield on the 10-year Treasury note rose to 2.60 per cent from 2.47 per cent late yesterday.

China’s purchasing managers’ index rose to 51.7 last month from 51.2, a government-backed report showed. A separate measure released by HSBC Holdings Plc and Markit Economics also increased.

United States manufacturers are benefiting from growth overseas. Caterpillar Inc, the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts on August 19.

Housing weakens
While factories are helping extend the recovery, the housing slump keeps taking a toll on the economy. Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress growth, Commerce Department figures showed today.

The 1 per cent drop brought spending to $805.2 billion, the lowest level in a decade, after a revised 0.8 per cent decrease in June that wiped out a previously estimated gain.