U.S. factory activity hits 2 1/2 year high

U.S. factories look to end the year on a positive note as factory activity reached a two-and-a-half-year high in November and construction spending increased in October according to reports.

Experts believe the increase in the industrial sector is good news for the overall economy as the Federal Reserve is considering scaling back on its $85-billion-a-month stimulus plan. Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, commented on the upbeat economic data.

"The economy is moving forward at a moderate to strong pace," Rupkey said. "This is additional evidence that the economic outlook is positive enough and expected to continue long enough and that the Fed might actually taper in December."

Factory activity is on the rise
A recent report by the Institute for Supply Management said its index for national factory activity rose 57.3 percent in November. This is the highest the index has been since April 2011 and an increase from October when the index reached 56.4 percent. The ISM report is similar to a separate index issued by Markit, which showed manufacturing reached a 10-month high in November.

Although these indexes show incredible growth for the industry, it differentiates with hard data such as durable good orders, industrial production and factory payrolls, which  projected the manufacturing industry to show a decrease in activity Even though there was a conflicting estimate from hard data forecasts, Bricklin Dwyer, a U.S. economist for BNP Paribas, believes ISM's data will build confidence in the industry.

"The persistent strength in the ISM increases our confidence that business investment in the fourth quarter will bounce back from the contraction in the third quarter, but we remain of the view that this rebound will be limited," Dwyer told Reuters.

Construction spending also increases
Along with an increase in factory activity, construction spending also saw a boost in October. A report from the Commerce Department showed that construction spending rose 0.8 percent to an annual rate of $908.4 billion. This is the highest level since May 2009 and a major surprise since it fell 0.3 percent in September. This number is also double what economist originally predicted. JPMorgan economist Michael Feroli told Reuters that the overall improving economy is helping the manufacturing industry.

"A recovering global economy appears to be helping domestic manufacturers," Feroli said. "The cooling in the import index may indicate that some of last quarter's inventory gain was due to stronger imports, and the inventory payback this quarter could partly pass over domestic factories and instead be felt in weaker import growth."