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Orders to U.S. Factories Rebound in Oct.

The Associated Press
Tuesday, December 6, 2005; 6:36 PM

WASHINGTON -- Orders to U.S. factories increased at a healthy pace in October, and third-quarter productivity shot up by the largest amount in two years.

The two government reports Tuesday provided fresh evidence that the economy is bouncing back from the devastating Gulf Coast hurricanes and the late summer spike in energy prices.

The Commerce Department reported that orders for manufactured goods rose by 2.2 percent to a seasonally adjusted $399.8 billion in October following a 1.4 percent September decline that was blamed on disruptions from the hurricanes and a strike at aircraft giant Boeing.

Meanwhile, the Labor Department said the productivity of American workers, the biggest factor determining future living standards, raced up at an annual rate of 4.7 percent in the July-September quarter, the best showing in two years.

The stronger increase in productivity, which was revised upward from an initial estimate of 4.1 percent, helped to push down labor costs, which fell by 1 percent in the third quarter, double the 0.5 percent decline initially reported.

The improved productivity and falling labor costs should ease fears at the Federal Reserve that wage pressures will make inflation worse. Fed policy-makers, who meet next week, are expected to nudge interest rates up by a quarter-point, the 13th such move since June 2004.

The big gain in productivity boosted spirits on Wall Street early in the day although those gains were eroded by sharp selling as investors tried to lock in profits before the close of trading.

The Dow Jones industrial average rose 21.85 points to end the day at 10,856.86 after being up 101 points in earlier trading.

Rising productivity means that companies can pay their workers more because of increased output rather than having to increase the price of their products.

The administration hopes that the recent good economic news will help lift President Bush's job approval ratings, which have fallen to the lowest levels of his presidency because of the Iraq war and consumer jitters about the economy.

White House spokesman Scott McClellan said the productivity increases over the past five years represented the fastest growth rate in this indicator since World War II. "More often than not, higher productivity means higher wages, something this president is very focused on," McClellan said.

Despite the strong productivity gains, income growth has lagged behind for middle and low-income workers, reflecting in part increased competition from low-wage countries as the U.S. trade deficit has soared to record levels.

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© 2005 The Associated Press