Source: General Motors assembly plant, Arlington, Texas. Source: General Motors
By Lucia Mutikani
WASHINGTON (Reuters) – U.S. manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods like motor vehicles as the COVID-19 pandemic drags on.
The survey on Monday from the Institute for Supply Management (ISM) was the last piece of major economic data before Tuesday’s presidential election. The strength in manufacturing will likely keep the economy floating, with growth expected to slow sharply in the fourth quarter after a historic 33.1% annualized rate of expansion in the July-September period.
The ISM said its index of national factory activity increased to a reading of 59.3 last month. That was the highest since November 2018 and followed a reading of 55.4 in September.
A reading above 50 indicates expansion in manufacturing, which accounts for 11.3% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 55.8 in October.
Manufacturers and suppliers said they “continue to operate in reconfigured factories” and with every month were “becoming more proficient at expanding output.” Though sentiment among manufacturers remained upbeat, it fell slightly compared to September. New coronavirus cases are surging across the country, raising fears authorities could impose restrictions to slow the spread of the respiratory illness as winter approaches.
The outcome of Tuesday’s vote is also expected to lead to a brief period of uncertainty. President Donald Trump is trailing former Vice President and Democratic Party candidate, Joe Biden, in national opinion polls.
Economic growth last quarter, which followed a record 31.4% pace of contraction the April-June quarter, was juiced up by more than $3 trillion in government pandemic relief. Government money has virtually dried up and there is no deal in sight for another rescue package.
Stocks on Wall Street were trading higher following their steepest weekly loss. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.
NEW ORDERS SURGE
The coronavirus crisis has pulled spending away from services towards goods that complement the changed lifestyle. Spending on goods has surpassed its pre-pandemic level.
The ISM’s forward-looking new orders sub-index surged to a reading of 67.9 last month, the highest reading since January 2004, from 60.2 in September.
With orders booming, manufacturing employment expanded for the first time since July 2019. The ISM’s manufacturing employment gauge rose to a reading of 53.2 from 49.6 in September.
That likely supported overall job growth in October. According to a Reuters survey of economists, nonfarm payrolls probably increased by 700,000 jobs last month after rising 661,000 in September. Employment growth has cooled from a record 4.781 million in June.
About 11.5 million of the 22.2 million jobs lost during the pandemic have been recovered. The government is scheduled to publish October’s employment report on Friday.
A separate report on Monday from the Commerce Department showed construction spending increased less than expected in September as gains in investment in private-sector projects were partially offset by a decline in public outlays.
Construction spending rose 0.3% in September. Data for August was revised down to show construction outlays advancing 0.8% instead of surging 1.4% as previously reported. Economists had forecast construction spending rising 1.0% in September. Construction spending increased 1.5% on a year-on-year basis.
Spending on private construction projects increased 0.9%, fueled by investment in homebuilding amid record-low mortgage rates and a pandemic-driven migration to suburbs and low density areas. Spending on residential projects increased 2.8%.
Outlays on nonresidential construction like gas and oil well drilling dropped 1.5% in September. The pandemic has crushed oil prices, resulting in spending on nonresidential structures contracting in the third quarter. The fourth straight quarterly decline in spending on nonresidential structures bucked a rebound in overall business investment.
Spending on public construction projects declined 1.7% in September.
Reporting By Lucia Mutikani,; Editing by Chizu Nomiyama and Andrea Ricci