US factory growth stayed strong in September while construction spending the prior month hit a record high for a seventh straight month, according to two reports on Friday, showing the economy's expansion remains solid.
The Institute for Supply Management's manufacturing index slipped slightly to 58.5 in September from 59.0 the prior month. That was the index's lowest level in nearly a year but still represented healthy growth for factories. It was also the 16th straight month of expansion.
Economists had expected the pace growth in the manufacturing to moderate after the sector posted the strongest stretch of growth in more than two decades during the first half of the year.
But with the ISM survey showing new orders at factories dropped to a 14-month low while exports hit a 22-month low, analysts will keep an eye out for a further slowdown, especially given lacklustre hiring during the summer.
"This is still very high, but it is decaying and is hard to square with the idea that the economy is regaining traction," said Ian Shepherdson, chief US economist at High Frequency Economics.
Overall the reports suggested the Federal Reserve will keep hiking the federal funds rate at a steady pace for the rest of the year despite some speculation that recent signs of tepid consumer spending and hiring would prompt the central bank to pause.
Construction spending rose 0.8 percent in August, twice as high as forecasts, to a seasonally adjusted annual rate of $1.02 trillion, the Commerce Department said. Falling mortgage rates boosted private construction and private residential construction to record highs.
A third report showed consumer sentiment slipping for a second straight month in September as households worry about everything from weak hiring and record oil prices to a bitter presidential election and violence in Iraq.
The University of Michigan's final consumer sentiment index for September dipped to 94.2 from 95.9 the prior month. For most of the year the sentiment index has been stuck around those levels.
"Because consumer sentiment is highly correlated with changes in payroll employment, faster job creation is needed in order to lift sentiment out of its doldrums. And, of course, faster job creation will also boost wage income and support additional consumer spending," said Steven Wood, chief economist at Insight Economics.
The Fed has hiked the fed funds rate by a quarter-percentage point three times this year to 1.75 percent and has said the rate remains too low for the economy's strength and could risk sparking inflation pressures down the road. At its last meeting the Fed said the economy was regaining "traction."
Earlier this week overall growth in the second-quarter was revised up to 3.3 percent, and with a surprisingly strong revision to consumption in July most economists are forecasting third-quarter growth of 4 percent to 4.5 percent.
Fed Board Governor Susan Bies said on Thursday that she expected the economy to growth "at a solid pace for the remainder of the year," though she said continued high oil prices will slow consumer spending and the economy.
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