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NAPM up, construction dips
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July 1, 1999: 4:51 p.m. ET
Manufacturing revives again, but dip in building paints mixed economic picture
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NEW YORK (CNNfn) - Manufacturing grew at its fastest pace in two years in June while construction spending fell in May, reports said Thursday, the latest signs of a not-too-hot, not-too-cold economy.
The reports came a day after the Federal Reserve raised a key short-term interest rate a quarter percentage point to 5 percent in a bid to slow the economy and ward off inflation. But the central bank also shifted its so-called bias to "neutral," rather than leaning toward another rate increase.
The National Association of Purchasing Management said its index of manufacturing activity climbed to 57 in June from 55.2 in May, well above forecasts of 54.4 and the highest since July 1997, when the economic turmoil that erupted in Asia began to hurt exporters in the United States and elsewhere. A reading above 50 suggests growth in manufacturing.
Separately, construction spending fell 0.9 percent in May to an annual rate of $694.3 billion. Economists had forecast a rise of 0.9 percent. It was the second straight decline after a revised drop of 2 percent in April.
"We're getting sort-of mixed results with what is happening in the economy," said Robert Brusca, chief economist at Ecobest Consulting.
What is clear is that a slight pickup in economies in Asia and elsewhere is helping American factories sell more goods overseas.
"Manufacturing is recovering -- and the recovery, in fact, is accelerating," IDEA Global.com economist Harvinder Kalirai said.
The drop in construction activity, meanwhile, came partly from the recent rise in long-term interest rates but also from seasonal factors, analysts said.
Stocks and bonds tumbled after the purchasing managers report on worries that strength in manufacturing might push the Fed to raise short-term rates again. But stocks recovered to end higher and bonds cut their losses. Higher rates tend to slow the economy and corporate profit growth, thus hurting stock prices.
The Dow Jones industrial average jumped 93.40 points to 11,064.20, its first close above 11,000 since May 13. The 30-year Treasury pared its losses to end off about half a point, raising its yield, which moves in the opposite direction from the price, to 6 percent from 5.96 percent Wednesday.
The NAPM report also contained hints that manufacturing might slow in the months ahead, Brusca said. Two components on hiring and backlog of orders both fell - suggesting companies don't see the road ahead as brighter.
"The fact that they're not hiring any workers may mean a spurt" in the data, he said. "It's very possible it's just a flash-in-the-pan report."
Analysts said the manufacturing report may still stir concerns at the Fed about economic growth later this year. Manufacturing accounts for about a quarter of the overall economy.
"If manufacturing is recovering [from] this drag on growth, which is already strong, it is probably going to raise some concerns at the Fed," Kalirai said.
Rising demand from Asia and parts of Europe, coupled with strong domestic growth, could push prices higher, feeding inflation, the analysts said.
In its report, the purchasing managers' group said the prices-paid component rose to 53.5 in June from 52.2 in May. The group's members buy everything from cardboard to computer chips for about 300 major corporations.
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