U.S. Manufacturing Grew in February

Manufacturing activity in the U.S. increased in February for the 13th straight month as production in the nation's factories continued to accelerate despite higher costs for raw materials.

The rising activity for manufacturers was driven by a growing number of new orders for manufactured goods both domestically and abroad as well as rising commodity prices and higher production rates, the National Association of Purchasing Management reported Wednesday.

And the strength was not confined to manufacturers. A separate report from the Commerce Department Wednesday showed that spending on construction rose 2.7% in January, its fastest pace since June 1998.

The data provides more evidence that the pace of economic growth has been accelerating despite attempts by the Federal Reserve to slow growth by raising short-term interest rates by a full percentage point over the last nine months. The Fed's policymakers are to meet again on March 21, and most economists expect them to raise rates again by a quarter percentage point.

In theory, higher interest rates slow economic growth by making it more costly for businesses and consumers to borrow and spend.

But the economy has yet to show any such signs of slowing, and officials at the central bank have expressed concern that the relentless pace of demand could exceed supply and lead to inflation.

"It's all part of the same message we've been hearing: even interest-rate sensitive areas of the economy like manufacturing and construction have shown little reaction to what the Fed has done so far," said Mike Cloherty, market strategist at Credit Suisse First Boston.

Rising costs for oil and other commodities, as well as upward pressure on workers' wages, are also adding to fears of inflation as economists wonder how long manufacturers can go without passing the growing costs to consumers. Thus far, strong growth in the hourly output per worker, known as productivity, has allowed companies to avoid raising the prices of their finished goods.

Norbert Ore, NAPM's survey chairman, said in a conference call that anecdotal comments from many manufacturers show that companies are still absorbing higher input costs rather than pushing the costs along to their customers.

The NAPM purchasing managers' index rose in February to 56.9 from 56.3 in January. A reading above 50 denotes growth, while a reading below 50 indicates a contraction in business activity.

The prices component of NAPM rose to 74.1 from 72.6 in January. That index has risen in recent months largely due to higher oil costs, but February's strength was also due to rebounding prices for many commodities such as textiles, electronic components, rubber and plastic, and chemicals.

In the construction sector, January's 2.7% month-over-month increase in spending followed an upwardly revised 2.1% rise in December. Year-over-year, construction spending increased by 7.7% in January.

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