Construction spending posts modest increase

WASHINGTON -- Construction spending edged up modestly in October, led by a surge in school construction, but a principal indicator of health at U.S. factories showed that manufacturing shrank for a third straight month.

Analysts said Monday's reports, which followed a surprisingly strong start to the holiday shopping season, depicted an economic recovery that appears to be slowing but not stalling.

The Institute for Supply Management said its closely watched index of manufacturing activity edged up to 49.2 in November from 48.5 in October.

But the advance was smaller than expected and left the index below 50, which indicates manufacturing is contracting. The manufacturing index has been in the recession zone for three consecutive months.

U.S. factories have suffered the most from last year's recession, as more than 2 million factory jobs have been lost over the past two years. A new wave of layoffs was announced this fall as companies trying to keep their stock prices from further deterioration pared their payrolls.

But the Commerce Department reported that construction spending rose by 0.3 percent in October, the gain reflecting strength in school construction and single-family homes. Home sales have been red-hot all year spurred by the lowest mortgage rates since the mid-1960s.

Analysts said the contrast between a struggling manufacturing sector and strength in consumer spending and construction showed the crosscurrents buffeting the economy.

"Once again the consumer is doing his job, but it is still the business sector having problems," said David Wyss, chief economist at Standard & Poor's in New York.

Gerald Cohen, economist at Merrill-Lynch in New York, said he believed consumer demand, which accounts for two-thirds of U.S. economic activity, would hold up enough to allow the economy to grow at a 1.5 percent rate in the final three months of the year. That would be far below the third-quarter growth rate of 4 percent but would not be the double-dip recession some have feared.