Manufacturing climbs out of recent funk

Don Hogsett, January 20, 2003

In a rare blast of good news out of smoke-stack America, economic activity in the long-depressed manufacturing sector expanded in December for the first time in four months, according to a monthly update from the nation's purchasing managers.

The Institute for Supply Management, a trade group whose members control the purse-strings of America's big manufacturing companies across a wide cross-section of industries, said gains in new orders and production during the month triggered a strong bounce in the monthly Purchasing Managers' Index.

The group's monthly index of manufacturing activity — based on a canvass of 400 companies — climbed to a level of 54.7, up strongly from a reading of 49.2 in November. A reading over 50 indicates an expanding manufacturing sector, while anything beneath points to a slowdown.

After declining for four straight months, "The manufacturing sector bounded in December," said Norbert Ore, chairman of the Institute for Supply Management's Manufacturing Business Survey Committee. A strong showing in the New Orders Index helped drive the overall Purchasing Managers' Index up for the month, while the Production Index strengthened as well, said Ore. "The question … is whether the manufacturing sector can continue to gather momentum during the first quarter of 2003."

The New Orders Index climbed to a reading of 52.2 during December, up 3.1 percentage points from November's 40.1 percent. It was the largest one-month increase in new orders since July and August of 1980.

But even with the spike the outlook still remains clouded, the trade group observed. "There are still those who see little if any improvement in their business. The situation with Iraq appears to still be weighing on some."

The trade group's Production Index rose more modestly, to a level of 55.6, up one percentage point, and marked the second consecutive month of growth.

Though new orders and production were on the upswing in December, manufacturing employment remained weak, with the Employment Index remaining beneath the benchmark level of 50 for a 27th straight month. The Employment Index came in at 47.4, up 3.6 percentage points from 43.8 in December.

Inventory liquidation slowed during December, and the Inventories Index rose to a level of 46.2, up from 42.1 in November, the 35th consecutive month under 50.

Manufacturers also worked off their order backlogs at a somewhat slower pace during December, and the Order Backlogs Index climbed to a level of 46.5, up four percentage points from 42.5 in November.

More American manufacturing products were being sent abroad, and the New Export Orders rose to a reading of 52.2, up 3.1 percentage points from 49.1 in December.

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