U.S. factory, jobs data show underlying strength in economy

Thu Jan 2, 2014 1:01pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. factory activity held near a 2-1/2-year high in December and the number of Americans filing new claims for jobless benefits fell again last week, suggesting the economy was poised for stronger growth in 2014.

The strengthening fundamentals were underscored by other data on Thursday showing construction spending hit its highest level in nearly five years in November.

"The underlying trends are pointing to the economy accelerating as we move through the year. Conditions seem to be coming together for a very good year," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Institute for Supply Management (ISM) said its index of national factory activity stood at 57.0 last month. The index had climbed to 57.3 in November, the highest since April 2011.

A reading above 50 indicates expansion. With a gauge of new orders hitting a 3-1/2-year high and inventories declining, manufacturing activity is set to accelerate early in the year.

While manufacturing accounts for only about 12 percent of the economy, it has been the key driver of recovery from the 2007-09 recession. Its continued show of strength is combining with improving fortunes in other sectors of the economy to set a foundation for sustained strong growth this year.

The brightening economic outlook prompted the Federal Reserve to announce in December that it would reduce its monthly $85 billion bond buying program by $10 billion starting this month.

A separate report from the Labor Department showed initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 339,000 last week. It was the second straight week of declines.   Continued...

A man picks up a leaflet at a job fair in Los Angeles, California, November 18, 2013. REUTERS/Lucy Nicholson