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Manufacturing index rises

December report marks 19th month of growth in sector

NEW YORK -- The nation's industrial sector ended 2004 on a high note, with manufacturing activity expanding in December for the 19th consecutive month, a research group reported. But the government said construction spending dropped in November as builders reined in projects in anticipation of higher interest rates.

The Institute for Supply Management said its main index of industrial activity rose to 58.6 in December from 57.8 in November. The December performance was slightly more robust than analysts had anticipated.

A reading of 50 or above means the manufacturing sector is expanding; below 50 represents a contraction. The index has been 50 or above since May 2003.

Norbert J. Ore, chairman of the institute's survey committee, said the December results were "driven by a significant increase in the new orders index." He added that the strong finish for 2004 meant that manufacturing had "significant momentum going into the first quarter of 2005."

Separately, the Commerce Department reported that construction spending declined 0.4 percent in November, the first drop in 10 months, as private builders cut back on residential and commercial projects. Analysts had forecast a 0.5 percent rise.

Still, the level of spending -- $1.01 trillion on an annualized basis -- was quite healthy. And construction activity in October turned out to be significantly stronger than initially thought. Revised figures showed that spending rose 0.3 percent, compared with the initially reported flat reading.

Dan Laufenberg, chief US economist at American Express Financial Advisors in Minneapolis, said the construction spending data were disappointing but not surprising.

"In a rising-rate environment, one would expect that construction would not do well," Laufenberg said. "What you're likely to see is some leveling off of construction activity."

Most analysts believe home sales will moderate in 2005, in large part on the expectation that mortgage rates will move higher. The average rate on 30-year mortgages could climb to about 6.5 percent by year's end, from 5.84 in 2004, analysts predict.

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