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Factories Still Tepid; Consumer Morale Up

Manufacturing's continued weakness emerged from a broad data dump Thursday, a contrast to increasingly buoyant consumers and construction's rebound.

The Institute for Supply Management's factory activity index edged up to 51.7 in October from 51.5 in September, signaling slightly faster growth. But most components worsened, including the employment gauge.

Earlier regional gauges softened last month, though the latest ISM report suggests manufacturing sentiment may be stabilizing, with help from central bank stimulus policies, wrote Bricklin Dwyer, a BNP Paribas analyst, in a client note.

But "the prevailing head winds from the weak global economy, and the domestic election and fiscal cliff are likely to keep production growth weak for some time yet," he added.

Investors still saw good news on balance, and U.S. stock indexes rallied sharply.

ISM warned that an improving new orders reading could be misleading as most sectors saw a drop. Overall, eight industries reported higher activity while eight saw contraction.

Those falling included primary metals, fabricated metals, machinery, transportation equipment, electrical equipment, computers and electronics, and appliances.

"We see a general softening in the steel and automotive markets in the fourth quarter," a fabricated metals purchasing manager told ISM.

Ford (NYSE:F) said October U.S. sales were nearly flat from a year ago, while GM (GM) saw a 4.7% increase.

Manufacturing output fell at an annualized pace of 0.6% in Q3, the first drop since Q2 2009, the Labor Department said. Manufacturing productivity fell at a 0.4% pace. Meanwhile, overall productivity rose at a 1.9% rate as output climbed 3.2%.

ADP's revamped survey of private-sector payrolls showed a net loss of 8,000 manufacturing jobs, even as employers overall added 158,000.

Initial jobless claims fell by 9,000 last week to 363,000. But the Challenger, Gray & Christmas report on planned layoffs hit a five-month high in October on manufacturers such as autos.

Wall Street expects Labor's October jobs report Friday to show that payrolls rose 125,000 and the jobless rate edged up to 7.9%.

The Conference Board's Consumer Confidence Index rose to a 4-1/2-year high of 72.2 last month from 68.4 in September. While expectations led prior gains, the latest was led by better views on current conditions.

Construction spending in September climbed 0.6%, as residential spending rose 2.7%, the sixth straight gain. That has helped construction jobs, which grew 23,000 in ADP's October report.