Factory, construction growth boost 2014 outlook

WASHINGTON -- Expectations are rising for a stronger U.S. economy in 2014 after reports Thursday showed solid growth in manufacturing and construction spending at the end of last year.

Factory activity in December stayed near a 2 1/2 -year high. Americans are buying more cars and homes, increasing demand for steel, furniture and other manufactured goods. Manufacturers have boosted hiring to meet that demand and may add jobs at a healthier pace this year.

Builders stepped up spending on home construction in November, despite recent increases in borrowing rates. That suggests many remain confident in the housing recovery.

The economy has had bursts of healthy growth since the recession ended in June 2009, only to be followed by disappointing slowdowns. But many analysts think growth is now more sustainable.

"There was strength in some important sectors of the economy at the end of last year," Paul Dales, an economist at Capital Economics, said. "2014 could be the year where the recovery really starts to gain some ground."

The Institute for Supply Management, a trade group of purchasing managers, said Thursday that its index of manufacturing activity slipped to 57 in December from 57.3 the previous month. But that's still the second-highest reading since April 2011. And any reading above 50 signals growth.

The ISM's measure increased for six straight months through November.

A measure of new orders rose to the highest level since April 2010. And a gauge of hiring increased to its highest level since June 2011.

Indexes of production and manufacturers' stockpiles fell.

Separately, construction spending rose 1 percent in November to a seasonally adjusted annual rate of $934.4 billion, the Commerce Department said. That's the highest in more than four years.

Spending on home and apartment construction rose 1.9 percent to the highest level since June 2008. And commercial project spending increased 2.7 percent, led by office, communication and transportation projects.

The reports add to other hopeful signs that 2014 could mark a turning point for an economy that has suffered through fits and starts since the recession ended.

Dales said the economy faces fewer barriers this year. Steep spending cuts or tax increases, which held back growth in 2013, are unlikely. Europe's economy is picking up slightly after a long recession. And U.S. consumers have more money to spend, thanks to greater hiring and last year's stock market surge.

Dales forecasts the economy will expand 2.5 percent this year, up from just below 2 percent in 2013. Other economists expect growth will top 3 percent in 2014. It hasn't been above that level for a full year since 2005.

The ISM survey followed other reports showing a healthier U.S. manufacturing sector.

Factory output rose in November for the fourth straight month, according to the Federal Reserve. And demand for long-lasting goods jumped in November, the government said last week, evidence that businesses are investing in facilities and equipment.

Strong factory output could lead to more jobs. Cooper Howes, an economist at Barclays Capital, notes that manufacturing employees are working longer weeks than at any time since World War II. That suggests factories will need to step up hiring to meet any increase in demand.

Howes expects manufacturers to add an average of 20,000 jobs a month this year. That would be a big improvement from an average of 5,000 a month in the first 11 months of 2013. December's jobs figures will be reported next week.

Overseas sales of U.S. goods are growing, but at a much slower rate, the ISM's survey found. A gauge of export orders fell to 55 from 59.5. A separate report this week showed factories in China expanded in December but at a slower pace than the previous month.

Auto sales reached the highest level in nearly seven years in November. Car makers will report December figures on Friday.

Companies rapidly increased their stockpiles of goods in the July-September quarter, one reason factories have boosted output. That helped push economic growth to an annual rate of 4.1 percent, the best in nearly two years.

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AP Economics Writer Josh Boak contributed to his report.

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