Economy up slightly

WASHINGTON — The nation’s economy is managing to grow modestly, reports Monday showed, despite high U.S. unemployment and growing alarm about Europe’s debt crisis.

Manufacturing expanded in September more than in August, though the pace of growth remains weak, according to a survey by the Institute for Supply Management. The ISM said its manufacturing index rose for the first time in three months.

And construction spending increased in August, the government said. The gain was due mostly to a pickup in state and local government projects.

In addition, U.S. auto sales rose in September, largely because consumers bought more pickups and SUVs, U.S. automakers said.

Collectively, the reports suggested that the U.S. economy may be able to avoid another recession but will continue to struggle.

Stocks fell sharply as worries persisted about Europe’s debt crisis. Greece said earlier in the day that it would miss deficit-reduction targets it had agreed to as part of its bailout agreement. That intensified fears that Greece could default on its debts, harming Europe’s economy.

For the United States, economists said the manufacturing and construction reports are consistent with an annual growth rate of about 2 percent to 2.5 percent for the July-September quarter.

That would be an improvement from growth of about 0.9 percent in the first six months of the year. But it wouldn’t be enough to reduce the unemployment rate, which is 9.1 percent.

The reports are “mildly encouraging,” said Paul Ashworth, chief U.S. economist at Capital Economics. “But even if the U.S. avoids a recession, economic growth is going to remain lackluster.”

One sign that it will came from the manufacturing report. Manufacturing executives said their volume of U.S. orders shrank for the third straight month. That doesn’t bode well for future production.

Export orders did grow at a faster pace last month than in August, the report found. But some reports Monday suggested that the global economy is slowing. A purchasing managers’ report for the 17 countries that use the euro showed manufacturing is contracting in that region.

And the auto industry’s gains may be temporary, economists said. Sales and production slowed over the summer after the March 11 earthquake in Japan. Recent increases likely reflect the end of supply disruptions stemming from that disaster.

Some analysts expect consumers to buy fewer cars later this year. Edmunds.com last week cut its annual forecast for sales this year, mainly due to worries about the economy. A clearer reading of the economy will come Friday, when the government will issue the jobs report for September. Economists think employers added somewhere between 50,000 and 100,000 net jobs last month.

That’s not enough even to keep up with population growth. And the unemployment rate is expected to remain at 9.1 percent for a third straight month.

The ISM’s manufacturing index rose to 51.6, up from 50.6 in August. A reading above 50 indicates expansion. The increase follows two months of declines.

Factories added workers last month, the report said. The ISM is a trade group of purchasing executives.

Wall Street woes

U.S. stocks dropped in a rough start to October, sending the indexes to their lowest closing levels since September 2010.

The Dow Jones industrial average dropped 258.08 points, or 2.4 percent, to close at 10,655.30. The decline was led by a 9.6 percent drop in Bank of America Corp. shares.

The Dow lost 6 percent for the month of September, its fifth straight monthly loss, and 12 percent for the quarter, its worst since March 2009.

MarketWatch