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November order rate hits a 20-year high

In terms of economic activity, the U.S. manufacturing sector enjoyed its best month in nearly 20 years in November. The purchasing managers index leaped 580 basis points last month, reaching 62.8 percent (its highest mark since December 1983), as the nation's economic growth picked up further momentum. Also, 18 of the 20 industries that contribute to the survey said manufacturing grew during the month.

The index, as compiled by the Institute of Supply Managers (ISM), benefited from the increasingly rosy outlook on the manufacturing sector from the responding purchasing and supply managers. November marked the fifth consecutive month of growth for the index, which has closely tracked the improvement in the overall economy; U.S. gross domestic product increased by nearly 5 percent in the third quarter, its largest rise in some time.

The responding purchasing and supply managers told ISM that the most positive outlook for manufacturing was in the employment sector, whose component index stopped a string of 37 consecutive months in which it declined. This index finished November at 51 percent, up 330 basis points over its October reading.

However, not everything in the employment sector is rosy. The purchasing and supply managers also mentioned current or impending layoffs in their companies. Several also noted that their firms are transferring the manufacturing of some product lines to offshore producers.

Back to the good news, the participants said their order backlogs increased in November, and the backlog of orders index registered 59 percent for the month. Eighty-five percent of the responding managers said their backlog was either higher or the same as it was in October.

The component index for production rose for the seventh consecutive months, to 68.3 percent for November or 570 basis points above its October level. Sixteen of the 20 industries that contribute to ISM's monthly report said their production levels improved last month.

"Based on this data, it appears that the recovery is gaining momentum," said Norbert J. Ore, chairman of ISM's Manufacturing Business Survey Committee. "Indications are that the manufacturing sector is ending 2003 on a very positive note, and all of the indexes support continued strength into 2004. While there are still companies lagging the recovery, they should be encouraged by the current indicators in the sector."

The index's November performance also pleased the investment community. Noting that all of the index's components had a strong month, John E. Silvia, chief economist of Wachovia Economics Group, added, "The breadth of the gains suggests that the economy is on a sustainable growth path and the balance of risks suggest stronger growth ahead."

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