The US' manufacturing sector grew in September much more strongly than expected, while prices of raw materials soared to the highest level in more than four years, according to a business survey.
The report by the National Association of Purchasing Management confirms that industry is recovering from the setbacks of the Asian financial crisis and provides further evidence that the overall economy rebounded from a sluggish second quarter.
Separately, the Commerce Department said the personal income of Americans climbed in August for the eighth consecutive month. But their spending rose faster, leaving the nation's savings rate matching a record low.
The combination of reports kept alive Wall Street's fears that the economy is overheating, sending stocks and bonds tumbling on worries that the Federal Reserve will try to cool things off by raising interest rates for a third time this year. Fed policy-makers meet tomorrow.
The Dow Jones industrial average was down nearly 153 at one point Friday and closed with a drop of 63.95 points at 10,273.00.
The purchasing managers' group said the manufacturing sector grew in September for the eighth consecutive month. Its index rose to 57.8 percent, the highest since a reading of 59.2 percent in November 1994 and was up sharply from 54.2 percent in August. Analysts had expected little change in September.
A reading of more than 50 is a sign of an expanding industrial economy.
The index is closely watched because it is the first national reading for September on US manufacturing performance, a key sector of the economy.
The government said last week that the US economy grew at an annual rate of just 1.6 percent in the April-June quarter, but many analysts viewed the spring lethargy as a brief pause, predicting stronger growth for the second half of this year.
David Huether, director of economic analysis for the National Association of Manufacturers, said the purchasing managers' report appeared to support expectations of renewed economic strength. He said he believed the nation's gross domestic product grew by at least 3 percent in the July-September period.
Huether said that while there were signs of recovery from the Asian crisis, which began in the summer of 1997, exports still remain sluggish. "I don't see exports increasing a lot until probably mid-2000," Huether said.
The nation's economic expansion, which began in March 1991, already is the longest period of peacetime growth in US history. It would match the record of 106 months set in the period of February 1961 until December 1969 of it continues through January 2000.
Norbert J. Ore, chairman of the management group's business survey committee, said in a statement that NAPM's price index jumped to its highest level since May 1995, "indicating that manufacturers continue to pay higher prices for their purchases."
The price index surged to 67.6 percent in September from 59.8 percent in August. That was the highest since 70.5 percent in May 1995, the association said.
The price reading could signal a squeeze for manufacturers, said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C. But he said it does not necessarily mean a rise in consumer prices.
"There's little evidence manufacturers will be able to pass on higher prices to consumers because of a lot of import competition," he said. As a result, he said, manufacturers probably will have to find ways to absorb the added costs or to increase productivity further.
The Commerce Department report showed that personal income which includes wages, interest and government benefits rose 0.5 percent in August, the eighth straight monthly increase.
The increase was a bit more than the 0.4 percent forecast by analysts and followed a 0.2 percent increase in July.
But spending went up 0.9 percent in August, also more than analysts had expected.
As a result, the nation's savings rate savings as a percentage of after-tax income fell to minus 1.5 percent, matching the record low set in May.
In another report, the Commerce Department said that construction spending fell an unexpected 0.4 percent in August to a seasonally adjusted annual rate of US$692 billion, a sign that one of the economy's strongest sectors is beginning to slow.
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