Rising factory output points to economy's recovery

WASHINGTON -- Rising factory output and a decline in the pace of layoffs are 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 in 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.

But efficiency gains may limit future job growth in the sector. For example, companies within the aerospace and defense industry are only recalling up to 30 percent of laid-off workers, said Rich Bergmann, who leads the supply chain manufacturing division at consultancy Accenture.

Airplane maker Boeing Co. last month announced plans to speed up production of two of its commercial planes starting next year. Still, the Chicago company sent layoff notices to more than 1,000 people in February, part of its plan to cut more than 10,000 jobs. Its global work force has increased slightly this year, but is still smaller than it was a year ago.

Factory employment will likely increase as production rises, but with productivity measures put in place during the recession, many of the more than 2 million jobs lost during the recession won't come back.

"There are some jobs that will go away," Bergmann said. "Companies are going to do things differently."

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.

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.