U.S. factories rebound, resisting global downward pull

By Jason Lange

WASHINGTON (Reuters) - U.S. factories ramped up activity in September, shaking off a one-month contraction in a sign America was resisting the downward pull of the sluggish global economy.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity rose to 51.5 from 49.4 the prior month, beating analyst expectations in a Reuters poll. Levels above 50 indicate the sector is expanding.

"This is a relief," said Ian Shepherdson, an economist at Pantheon Macroeconomics.

Factory output was a weak spot for the U.S. economy early in the year as a global slump weighed on American factories.

More recently, net exports added to economic growth in the second quarter and Monday's report showed signs factories' future sales could increase, with the ISM index for new orders rising to 55.1 from 49.1 in August.

The dollar rose against a basket of currencies while Treasury yields also moved higher and U.S. stocks fell.

Manufacturing is grappling with the lingering effects of a strong dollar and lower oil prices. Economic growth is also listless in major U.S. trading partners in the European Union and Asia.

Activity in manufacturing, which accounts for 12 percent of the U.S. economy, has also been undercut by an inventory correction.

Another report on Monday showed U.S. construction spending fell for the second straight month in August to its lowest level in eight months, an unexpected drop driven by weakness across public and private sectors, including in home building.

The Commerce Department said construction spending dropped 0.7 percent to a seasonally adjusted annual rate of $1.142 trillion in August. Economists had expected outlays to rise 0.2 percent.

The successive monthly declines in outlays suggest home building might not help economic growth in the third quarter and forecasting firm Macroeconomic Advisers cuts its expectation for GDP growth in the July-September quarter to a 2.6 percent annual rate from a 2.9 percent rate.

Consumer spending has been a major prop for economic growth this year and automakers on Monday reported total vehicle sales rose in September to a 17.76 million annualized rate. Compared to the same month a year earlier, however, sales were down slightly.

(Reporting by Jason Lange; Editing by Andrea Ricci)

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