Manufacturing and Construction Lift Outlook on U.S. Economy

The Institute for Supply Management, a trade group of purchasing managers, said on Tuesday that its manufacturing index rose to 53.9 in December from 52.7 in November. Readings above 50 indicate expansion.

Also on Tuesday, the Commerce Department reported that spending on construction projects rose 1.2 percent in November, following a revised 0.2 percent drop in October. The increase was the third in four months and the largest since a 2.2 percent rise in August.

The November increase pushed spending to a seasonally adjusted annual rate of $807.1 billion, still barely half the $1.5 trillion that economists consider healthy. Analysts say it could be four years before construction returns to healthy levels.

United States manufacturing has expanded for more than two years. Factories were one of the first areas of the economy to start growing after the recession officially ended in June 2009.

The latest survey from the Institute for Supply Management showed that domestic factories should start the year strongly. Factories hired last month at the fastest pace since June, the survey found. A measure of new orders rose, a good sign for future output. And exports also increased last month, though it was not clear how long that would last. The economy in Europe is faltering as the Continent continues to address its debt crisis.

Consumers are gaining confidence and are spending more. Some economists were forecasting that car sales increased in December after a strong month of sales in November. That should improve output among automakers and also steel companies, tire makers and others that supply the industry.

Orders for long-lasting manufacturing goods jumped in November, the Commerce Department said last month. Most of that increase reflected a huge rise in commercial aircraft orders, a volatile category.

Still, demand for core capital goods, which are often a proxy for business investment plans, fell for the second straight month. Business spending was a crucial driver of economic growth in 2011. If businesses trim spending, economic growth is likely to slow.

Businesses are less likely to retreat, however, if the economy continues to improve.

For construction in November, strength was seen in housing and government spending. Nonresidential construction fell, reflecting declines in construction of office buildings and shopping centers.

The industry was hit hard by the housing bust and has had trouble recovering. But home construction has begun a gradual rebound and should add to the nation’s economic growth. The chief reason is that apartments are being built almost twice as fast as two years ago. Renting is often the only option for many people who have lost their jobs, their homes or both.

Builders in November broke ground on homes at a seasonally adjusted annual rate of 685,000. That was a 9.3 percent jump from October and the fastest pace since April 2010.

Builders should start at least 600,000 homes this year. That is up from 587,000 last year and 554,000 in 2009 — the worst year on record — but it is half the number that economists expect in a healthy market.

Even so, the recovery appears to be strengthening, if fitfully. Last week, the Conference Board said its consumer confidence index rose in December to the highest level since April. That is important because consumer spending accounts for about 70 percent of the economy.

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