Manufacturing expanded at the fastest pace in 2-1/2 years in October while automakers reported brisk sales Friday, signaling that the U.S. economy made headway despite the 16-day government shutdown.
The Institute for Supply Management's U.S. manufacturing index rose 0.2 point to 56.4, the highest since April 2011. Economists had expected a dip to 55.
"I'm really encouraged," said Carl Tannenbaum, chief economist at Northern Trust. "ISM had reached a pretty nice reading prior to the government shutdown and I was quite concerned that the trauma of the fiscal problems would diminish expectations among manufacturers.
The shutdown also didn't faze consumers from making big-ticket purchases. GM (GM), Ford (F), Chrysler and other automakers had strong October U.S. sales.
ISM data often correlate closely with GDP growth, Tannenbaum said. "The fact that we have been in the mid-50s augurs well.
Several subindexes showed welcome signs of expansion, said Gus Faucher, a senior macroeconomist with PNC Financial Services.
The exports orders index shot up 5 points to 57, also a 2-1/2-year high. Stronger global growth would be a boon for U.S. manufacturing, Faucher said. And new orders and production gauges both remained above 60.
But the rosy economic data will mean little to the Federal Reserve without better hiring, cautioned Faucher. "It's difficult for me to imagine (the Fed) doing anything at its December meeting," he said, adding that a January taper of asset buys is more likely.
ISM's jobs index fell 2.2 points to 53.2, still positive, but the weakest in four months.
Employers added just 148,000 jobs in September. The government will report October figures Nov. 8, but they'll be distorted by the government shutdown. Economists don't expect "clean" data until early December.
Fed officials Friday seemed to express frustration with being locked in to propping up the economy. St. Louis Fed President James Bullard said gains in the job market seemed to make a case for starting to taper. Philadelphia Fed President Plosser told CNBC that he's mulling an overall cap on asset purchases as "a better way to get out of this.
Stocks just edged higher while Treasury yields rose as odds for an earlier taper improved.
The U.S. economy should grow 1.9% in 2013, and as much as 3% in 2014, Tannenbaum said. The shutdown will shave 0.3 percentage point from Q4 GDP, he said.
"Financial markets and business people took this in stride," he said. "Perhaps they expressed outward frustration, but it didn't seem to deter them from focusing on the longer run."