Income, spending rise manufacturing strengthens; Other signs also point to economy's vigor


WASHINGTON -- Manufacturing unexpectedly strengthened in October and personal incomes rose in September, signs that the U.S. economy is powering ahead, figures showed yesterday.

The National Association of Purchasing Management's factory index rose to 56.0 last month from 54.2 in September, led by gains in orders and production. Employment and exports also strengthened. A reading of 50 or more in the NAPM index means that manufacturing is expanding.

The statistics increase the chances that the Federal Reserve may raise the overnight bank lending rate to keep inflation in check, providing last week's rout in the stock market doesn't hurt consumer confidence or spending, analysts said. The fourth quarter is "likely to see strong industrial production numbers, so any slowdown will have to come from the consumer sector," said Ian Shepherdson, an economist at HSBC Securities in New York.

Personal income continued to rise in September, though, suggesting that consumer spending may not slow as much as the Fed would like to see. Income rose 0.4 percent in September after rising 0.6 percent in August, Commerce Department figures showed. Consumer spending also increased in September, rising 0.2 percent after climbing 0.3 percent in August.

The Dow Jones industrial average surged 232.32 points, or 3.12 percent, to close at 7,674.40. The Treasury's benchmark 30-year bond fell 3/4 of point, meanwhile, pushing up its yield up more than 5 basis points to 6.21 percent.

The debate about the strength of the economy is not clear cut. Yesterday, for example, Chrysler Corp. said its U.S. car and truck sales in October declined 8.3 percent from a year earlier, a weaker showing than auto industry analysts had anticipated. Additionally, government figures showed construction spending declined 1.1 percent in September, the biggest drop in almost a year, after holding steady in August.

Analysts had also expected the purchasing managers index to register a decline in October, falling to 54.1. Instead, the trade group's report painted a picture of a strong and growing manufacturing base for the U.S. economy.

In addition, yesterday's NAPM report contained an inflation warning: The price index, considered by some analysts an important indicator of the inflation outlook, rose to 55.9 in October from 54.7. Also:

The new orders index rose to 59.0 from 55.8.

The production index rose to 60.0 from 57.4.

The inventories index fell to 46.5 from 46.9.

The supplier delivery index fell to 54.7 from 55.2.

The indexes do not measure how much factories produced or how much prices rose or fell. Instead, they gauge the number of manufacturers surveyed that reported increased production or paid more for raw materials.

The news on personal income and spending was already evident in third-quarter statistics on the gross domestic product released Friday by the Commerce Department. The economy grew at a stronger-than-expected 3.5 percent annual rate in the third quarter, helped by an annualized 5.7 percent third-quarter surge in consumer spending -- the biggest increase since the first quarter of 1982.

"We see a very strong fourth quarter," led by strong sales of building control products such as thermostats, said Larry Strang-hoener, chief financial officer at Minneapolis-based Honeywell Inc. "The overall environment continues to be attractive and going strong."

Pub Date: 11/04/97

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