NEW YORK - The economy seems on track for slow but steady gains after reports Tuesday showed growth in manufacturing activity, construction spending and contracts to buy homes.
The batch of new economic data lifted spirits on Wall Street. But analysts cautioned that the economy won’t come roaring back from the worst recession in seven decades. Some say the rebound’s modest growth could falter next year as unemployment keeps rising.
“We have a recovery, but it is going to be a slow one,” said David Wyss, chief economist at Standard & Poor’s in New York. “People are still reluctant to add workers.”
In one encouraging sign, the Institute for Supply Management said its manufacturing index showed growth in November for a fourth straight month. The reading of 53.6 was slightly lower than October’s 55.7. But any reading above 50 indicates growth. Economists were especially encouraged that new orders – a gauge of future production – jumped last month. Of the 17 industries surveyed, 13 reported higher orders.
A second report on construction spending from the Commerce Department also signaled growth, with the first overall increase in six months. The increase was slight – just 0.04 percent. But it appeared to indicate that the construction sector is stabilizing.
The October rebound was fueled by a 4.4 percent surge in residential construction, the largest gain in more than a decade. Builders rushing to begin work before the expiration of a tax credit for first-time home buyers propelled the increase. The credit has since been extended and expanded to some existing home owners.
A third positive report showed that the number of homebuyers who signed contracts to buy previously occupied homes rose for the ninth straight month in October. This increase, too, came as buyers rushed to take advantage of the homebuyer tax credit. Every region enjoyed year-over-year gains in pending sales, according to the report by the National Association of Realtors.
In the ISM report on manufacturing, analysts were impressed that new orders jumped past 60 for the third time in the past four months.
The last such streak was in 2005.
“U.S. factories continue to benefit from rising global demand, a weakening dollar, inventory rebuilding and a modest pickup in consumer spending,” said Sal Guatieri, senior economist at BMO Capital Markets.
Chris Liddell, chief financial officer for Microsoft Inc., has predicted that corporations could start replacing aging PCs and servers starting in 2010.
The Commerce Department report on construction spending showed that nonresidential activity remained weak as work at office buildings, hotels and shopping centers declined. That weakness, though, was offset by the surge in homebuilding.
The Realtors’ seasonally adjusted index of sales agreements rose 3.7 percent from September to 114.1. It was the highest reading since March 2006.