Growth in manufacturing encouraging for economy

WASHINGTON -- Manufacturing is growing in the United States and abroad, easing fears that the economy might be on the verge of a second recession.

The U.S. sector expanded for a 13th straight month in August, coinciding with gains in Chinese manufacturing and auto sales.

The news gave Wall Street a boost, with investors overlooking dismal reports on U.S. auto sales and construction spending. The Dow Jones industrial average closed 253 points up.

China's robust growth raises hopes that it will step up its consumption of U.S. exports and help sustain the U.S. economic recovery.

"Companies that have established distribution capabilities in big markets such asChina, India and Brazil are doing well," said Brian Bethune, chief U.S. financial economist at IHS Global Insight. "These markets are pretty much the main game in town until the American household gets out of the intensive care unit."

In the U.S., manufacturing has helped lead the economy out of the worst recession since the 1930s and factories kept churning out goods last month.

The Institute for Supply Management said Wednesday that its manufacturing index rose to 56.3 in August from 55.5 in July. A reading above 50 indicates growth. The trade group's index has surged since late 2009 and hit a six-year high in April.

U.S. factories have seen rising demand for exports and from businesses that are investing in capital equipment and supplies. That has given the economy a lift at a time of uncertainty for the recovery.

Jobs are scarce, the unemployment rate is near double digits, home sales are at the lowest level in 15 years, and the American consumer is not spending enough to give businesses confidence to hire.

Construction activity dropped 1 percent in July, the third straight monthly decline, the Commerce Department said. Government revisions showed much weaker activity than previously reported for May and June.

The housing industry is hardly showing signs of a rebound. The July construction decline pushed building activity down to a seasonally adjusted annual rate of $805.2 billion. That's 10.7 percent below the pace of a year ago and the lowest level since July 2000.

The government is expected to report Friday that the economy added a net total of 41,000 private-sector jobs, which would mark the fourth straight disappointing month.

Job gains at industrial companies have made up about 30 percent of net hiring by businesses and other private organizations in 2010. Manufacturing makes up roughly 10 percent of private-sector jobs.

Employers at factories are eager to add jobs. The August survey showed managers' desire to hire increased to 60.4 - the strongest level since December 1983.

Lori Jenks, president of a small San Diego company that makes parts for gas turbines, said she is desperate to add a salesperson. She wants to hire someone to help find new business after lowering her sales expectations for the year.

Even with fewer sales this year, she has doubled her sales from the same point in 2009.

Wednesday's report suggests that moderate growth in manufacturing will continue, said Norbert Ore, the chairman of the survey.

However, a measure of new orders, which are a gauge of future business, dipped to the lowest level since June 2009 after surging earlier this year. That slowdown is consistent with the more moderate pace of growth in the U.S., Europe and China that is expected in the second half of the year, said TD Economics analyst Martin Schwerdtfeger in a research note.

China, the world's second-largest economy, has been growing at a sizzling pace this year. Two surveys of the Chinese economy released Tuesday showed that production, new orders and purchasing prices all rose in August.

Reports out of China also showed hefty gains in auto sales for August. The extension of government subsidies for energy-saving vehicles and stronger demand for imports helped push auto sales nearly 56 percent higher over a year earlier. They hit 1.21 million vehicles for the month, according to the China Automotive Technology and Research Center.

Robust growth in China could help boost the struggling U.S. economy, which expanded at a meager 1.6 percent rate in the April-to-June quarter.

As America's third-largest export market, China purchases large quantities of American farm products, such as soybeans, and manufactured goods including commercial airliners, semiconductor chips and industrial machinery.

Apple Chief Executive Steve Jobs said Wednesday at a media event in San Francisco that China represents an important growth market for his company.

But American manufacturers say U.S. exports would be much higher if it were not for China's refusal to allow its currency to rise in value against the dollar. That has made U.S. exports more expensive in China, and Chinese imports cheaper in the U.S.

On Tuesday, the Commerce Department moved to impose penalty tariffs on imports of Chinese aluminum, ruling that the Chinese government was providing unfair subsidies. But Sen. Charles Schumer, D-N.Y., said the administration should have gone further and ruled that that Beijing's currency system constituted an unfair government subsidy.

Analysts said China will remain crucial to U.S. manufacturing fortunes in the coming months, given its faster growth relative to other parts of the world.

"China is really the global driver of growth right now. We need to realize that is the case," said Donald Straszheim, head of China research for International Strategy & Investment Group, an independent research firm.