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Manufacturing activity records gain in Feb.

Don Hogsett, Staff Staff, March 11, 2002

In a compellingly strong signal that the U.S. economy may finally be picking up steam, the broad manufacturing sector snapped an 18-month losing streak in February, putting up its first gain in manufacturing activity since July 2000, according to the widely watched monthly barometer of the nation's purchasing managers.

The key gauge of manufacturing activity put up a reading of 54.7, according to the Purchasing Managers Index compiled by the Institute for Supply Management (ISM), formerly the National Association of Purchasing Managers (NAPM). The February jump followed a January reading of 49.9 percent and marks the fourth consecutive month of a rally in the manufacturing sector.

Last month's run-up puts the index up 12.7 points from its year-ago level of 42.0. A reading above 50 indicates that the manufacturing sector — which makes up roughly a sixth of the overall economy — is expanding, while a reading beneath 50 indicates a contraction.

"February signals the turnaround for manufacturing," as well as "an accelerating trend in new orders and production," said Norbert Ore, chairman of the ISM's Business Survey Committee. "Most of the indexes are heading in the right direction at this point. Employment is still soft, but it is a lagging indicator and will need a number of months of growth before it recovers. Pricing power is still lagging but should begin to develop if the trends in new orders and production continue."

Providing a big lift to the overall index was strength in four key components: new orders, production, order backlogs and new export orders. Providing a further assist, inventories were contracting at a faster pace in February, and customer inventories were lower as well.

The New Orders Index advanced sharply last month to a reading of 62.8 percent, up 7.5 points from 55.3 in January. The Production index climbed to a level of 61.2 from 52.0 a month ago, an even larger gain of 9.2 points. The Order Backlogs Index climbed by 8.5 points to 53.0 from 44.5 in January.

But manufacturers still were unable to get any pricing traction, and prices remained under pressure and contracted at an even faster pace, with the Pricing Index slipping to a reading of 41.5, down from 43.9 in January.

"Manufacturing has struggled, and hopefully this signals the beginning of a strong recovery," said Ore. "It is encouraging that 13 industries reported growth in new orders. It appears that the inventory liquidation is nearing completion, as customers' inventories are quite low."

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