There was one victory and one setback regarding the latest construction and factory data points for the U.S. economy: construction spending rose but a key manufacturing index edged lower.

Construction spending rose 0.8 percent in August to a seasonally adjusted annual rate of $941.9 billion, the U.S. Commerce Department announced Thursday, led by an increase in private residential building. However, the August data was qualified by the fact that construction spending fell a revised 1.1 percent in July, from the previously released 0.2 percent decline. The revision highlights the margin-of-error contingent nature of the monthly construction data: hence, August's initial report barely offset July's revised decline.

Meanwhile, the Institute for Supply Management's manufacturing index edged lower to 52.6 percent in September from 52.9 in August, but the index still indicates an expansion. The index pushed over 50, the demarcation between expansion/contraction, in August for the first time since the recession started in December 2007.

Economists surveyed by Bloomberg News had expected August construction spending to fall 0.1 percent. The Bloomberg survey also expected the ISM Manufacturing Index to rise to 53.5 in September from the aforementioned 52.9 in August. The ISM index was at 46.5 in July and 44.8 in June.

Regarding construction, in August spending on private residential projects jumped 4.7 percent, while public sector spending declined 1.1 percent. Further, in the first eight months of 2009, construction spending is still down 11.9 percent compared to a year ago.

Meanwhile, all key components of the ISM manufacturing index pulled-back in September. The ISM's manufacturing new orders index, a measure of future demand, retreated to 60.8 percent in September from 64.9 in August. The 60.8 percent stat is a level that still indicates growth, but if the decline continues, it would be a sign that manufacturing activity is easing -- which would not be a positive development for the recovery. The production index fell to 55.7 in September from 61.9 in August; the export index, to 55.0 from 55.5; employment index, to 46.2 from 46.4.

Manufacturers expect fiscal stimulus benefit

One unique aspect of the September ISM manufacturing survey: this month the ISM asked a special question on the $786 billion fiscal stimulus package, formally the American Recovery and Reinvestment Act. "Twelve of the18 manufacturing industries expect to derive some benefit from the program, and 12 manufacturing industries responded that they expect their companies to see some benefit," Norbert J. Ore, chairman of the ISM's Manufacturing Business Survey Committee said, in a statement.

In the regular, monthly survey, representative comments of manufacturing conditions included: "Business is picking up -- lots of opportunities" (primary metals sector); and "Agricultural commodities continue to weaken, with the exception of the domestic and world sugar markets" (food, beverage and tobacco products sector); and "Purchasing remains a challenge as suppliers now seem to be trying to raise pricing at any sign of life in the economy" (computer and electronic products sector).

Economic Analysis: Overall, both reports were tepid. The 0.8 percent rise in August construction spending would have been an eye-opener, had it not been for the large, downward revision in the July construction statistic: to a huge 1.1 percent decline from the initial 0.2 percent decline estimate. The revision underscores why investors should not place too much emphasis on one month's data, but rather look at the longer-term trend. The bottom line regarding construction: housing sector construction is stabilizing, but activity in other construction areas remains soft.

Concerning the September ISM Manufacturing Index, the dip to 52.6 will be overlooked. Again, the decline was minor. It's just one month's data, and the index remains over the 50 level that indicates expansion. Provided the main index and the new orders component resume their advances in the months ahead, the U.S. economic recovery narrative will remain in place.

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