Rising factory output points to economy's recovery

WASHINGTON (AP) - Rising factory output and a decline in the pace of layoffs is giving economists confidence that the recovery has staying power.

The government is expected to report Friday that the economy added jobs in March for only the second time since December 2007.

Still, job creation is likely to remain weak for years to come, in part because U.S. factories have become more efficient, producing more goods with fewer workers. On top of that, the sector's contribution to the overall economy has been shrinking for decades due to competition from China and other countries where factory workers are paid much less.

Another reason the job-growth engine is stuck a low gear is that the building sector remains extremely weak in the aftermath of the housing bust.

Construction spending fell sharply in February to its lowest level in eight years, the Commerce Department said Thursday. Spending fell particularly hard in commercial ventures, such as hotels and office buildings.

"Even as manufacturing continues to hum along, the construction sector looks awful," Michael Feroli, an economist at JPMorgan Chase, said.

U.S. manufacturing activity increased in March at its fastest rate in 5 1/2 years, a private trade group said Thursday. Manufacturing data released Thursday by China, Britain and the 16 countries using the euro all showed a surge in activity in March.

Manufacturers are benefiting from a robust recovery in Asia and parts of Latin America and increased business investment in the United States.

Factories have also been churning out goods for businesses that during the recession had let their stockpiles dwindle to save cash. If consumer spending doesn't pick up, that burst of manufacturing could ebb.

The weak jobs market showed signs of stabilizing on Thursday. The Labor Department said new claims for jobless benefits dropped by 6,000 last week, to a seasonally adjusted 439,000. It was the fourth decline in five weeks, a signal that the pace of layoffs is slowing.

Still, the number of people continuing to claim unemployment benefits remains high, at nearly 4.7 million - a sign that hiring remains weak. And that figure doesn't include the more than 6 million people who are receiving extended benefits from the federal government after their state benefits - which last 26 weeks - ran out.

Without much help from construction or manufacturing, the unemployment rate, now at 9.7 percent, is likely to be high for several years.

Treasury Secretary Timothy Geithner said Thursday in a television interview that administration officials are "very worried" about recovering the more than 8 million jobs lost in the recession. But he noted that business growth has been improving and expects the economy "is going to start creating jobs again."

The secretary said the jobless rate is "still terribly high and is going to stay unacceptably high for a very long time" because of the damage caused by the recession. The interview was broadcast on NBC's "Today" show.

Economists forecast that Friday's unemployment report will show 190,000 jobs were added last month. That's the largest gain in three years and only the second since the recession began.

Much of that gain, however, will stem from temporary hiring for the U.S. Census. Excluding this, and the effect snowstorms had on the February unemployment count, some analysts estimate the economy will add about 25,000 to 50,000 jobs.

The Institute for Supply Management, a trade group of purchasing executives, said its gauge of industrial company activity rose to 59.6 in March from 56.5 in February, the fastest growth since July 2004.

A level above 50 indicates growth. Economists had expected a reading of 57.

Factories that make goods for export are "evidently enjoying the benefits of the rebound in world trade, whereas other sectors more dependent on domestic sales are still struggling," Paul Ashworth, U.S. economist at Capital Economics, said in a research note.

New orders, a signal of future production, and existing production also grew faster in March.

The Commerce Department said Thursday that construction spending fell 1.3 percent in February to a seasonally adjusted annual rate of $846.23 billion. That was the lowest level since November 2002 and the fourth straight month of decline.