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Business

Factories, builders having a tough time

| Wednesday, July 2, 2003

NEW YORK -- Dampening hopes that the economy is picking up steam, U.S. manufacturing continued to shrink in June and construction spending dropped in May by the largest amount in a year.

The Institute for Supply Management said Tuesday that its widely watched manufacturing index was at 49.8 last month, up from 49.4 in May. But a reading under 50 indicates shrinking activity.

Meanwhile, the Commerce Department reported that the seasonally adjusted annual value of construction projects under way in May was $869.8 billion, a 1.7 percent decline from April.

Private builders cut back spending on both homes and office buildings, and spending on big public works projects declined to its lowest level in nearly a year.

A burst of late-day buying lifted Wall Street higher Tuesday as investors shook off downbeat reports on manufacturing and construction spending and placed bets on an improving economy.

Analysts said investors were remaining largely optimistic despite recent mixed economic data. That sentiment enabled the market's major indexes to recover from sharp losses; the Dow Jones industrials bounced back after falling as much as 114 points early in the day.

"Many money managers aren't taking money off the table because they're afraid of missing another 20 percent rally. The market is really looking at the economy to come back," said Todd Leone, managing director of equity trading at SG Cowen Securities.

The Dow closed up 55.51, or 0.6 percent, at 9,040.95.

The broader market also advanced. The Nasdaq composite index gained 17.33, or 1.1 percent, to 1,640.13. The Standard & Poor's 500 index rose 7.82, or 0.8 percent, to 982.32.

Manufacturing has been the weakest link in the economy's struggle to get back to full speed. The sector has throttled back production and cut jobs because of weak demand and competition from imports.

"Manufacturing may be finally be stabilizing, though the sector has clearly not started to grow," said Joel Naroff, president of Naroff Economic Advisors.

The ISM's index of employment in the manufacturing sector rose 3.2 points, but at 46.2, it still indicated shrinking employment for the 33rd consecutive month.

Norbert J. Ore, who heads the survey for the institute, said that despite the overall weakness in the sector, increases in new orders and production are an encouraging sign for the second half of the year.

To nudge the economy, the Federal Reserve cut a key interest rate last week by a quarter percentage point to 1 percent, the lowest level in 45 years.

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