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Index shows recovery is well on its way

In one more compelling sign that a battered manufacturing sector may finally be on the road to recovery, manufacturing activity, while still weak, picked up in January, gaining almost 2 percent over December, according to a monthly canvass of purchasing managers.

The February advance — to a reading of 49.9 from 48.1 in January — marks the third straight monthly gain in the closely scrutinized Purchasing Managers' Index compiled by the Institute for Supply Management, formerly the National Association of Purchasing Managers, or NAPM.

The three-month rally could mean that a long, 18-month losing streak is finally coming to an end for an embattled manufacturing economy. A reading beneath 50 indicates that the manufacturing sector, which accounts for roughly a sixth of the American economy, is still contracting. However, the January reading, at 49.9, is only a hair's breadth away from signaling a recovery. Illustrating just how much the manufacturing economy has improved, the January reading is now more than 10 points higher than the decade-long low of 39.8 reached last October.

"While the manufacturing sector experienced a decline in January, it is encouraging that the rate of decline has slowed to its lowest measurable level," said Norbert Ore, who heads up the ISM's Manufacturing Business Survey Committee. "In January, new orders, production and supplier deliveries provided positive indications of a potential return to growth in the manufacturing sector," even as employment and inventories remained a drag

"The overall picture shows improvement in manufacturing activity during the month of January," Ore explained. "While the manufacturing decline is now in its 18th month, some industries are starting to show significant signs of recovery as both new orders and new export orders are improving. Though prices continue to decline, a slower rate of decline indicates that some industries are, or should be shortly, developing pricing power." Eight of the 20 industries that make up the monthly survey reported gains in new orders, a notably positive sign, Ore added.

The New Orders Index now stands at a reading of 55.3, well above the make-or-break line, a second straight month of growth. The Production Index climbed to a reading of 52, up from 50.3 in December, a gain of 1.7 percentage points. The Employment Index, while still weak at 42.6, climbed beyond the 39.2 mark reached in December.

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