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Manufacturing pace picks up in November

After a one-month trip into the utter doldrums, the purchasing managers' index staged a comeback in November, finishing at 44.5 percent. That level still indicates a decline in manufacturing activity for the month, according to the National Association of Purchasing Managers (NAPM), which keeps this crucial indicator of manufacturing confidence.

But the rise in the index did indicate that "the manufacturing sector showed surprising resilience in November," according to Norbert Ore, chairman of NAPM's manufacturing business survey committee. Ore cited a 10.5 percent pickup in the new orders component of the overall index, among the largest one-month increases in the indicator's history — which also occurred as the economy was pulling out of the shock of Sept. 11.

"The trend is in the right direction," said Ore, "but it is too soon to claim an eminent recovery. Based on this report, the [manufacturing] sector regained a significant portion of the output lost in October. The fact that five of 20 industries [surveyed in the report] recorded strength in new orders is encouraging."

The November report also yielded a dramatic gain in the production index, which added 620 basis points onto the October index to finish at 47.1 percent. The new export orders index tacked on 430 basis points between October and November, rising to 49.3 percent. The prices index in November was 31.6 percent, off 90 basis points from the October level and indicating that manufacturers continue to pay lower prices.

The inventories index was 37.9 percent last month, up 110 basis points from October and showing a slower rate of inventory liquidation. The employment index finished November at 35.7 percent, up 60 basis points from October, and NAPM said no manufacturing sectors reported increased employment last month.

David Orr, chief economist for Wachovia Securities, termed the NAPM's report "reassuring," showing a rebound from the dramatic plunge in October. Orr believed that the financial markets should be encouraged by the rise in the new orders index, even though that index is still below the 53.1 percent reached this past August.

Asha Bangalore, economist for Northern Trust, noted that the November increase over the October index was the largest for one month since July 1995. "The level continues to indicate that the factory sector is contracting, but it is now declining at a slower pace," Bangalore said.

She added that the current watch will be on future index behavior. "The fact that inventories have been liquidated aggressively for three consecutive quarters and consumer demand has not collapsed raises expectations that this time around, these signals could have more endurance," said Bangalore.

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