Sun, Mar 03, 2002 - Page 11 News List

Index shows end of manufacturing slump

FACTORY ORDERS In an Institute for Supply Management survey, 14 out of 20 industries reported growth, giving pundits another reason to be optimistic about Q1

BLOOMBERG , WASHINGTON

US manufacturing grew in February for the first time in 19 months, a sign the recession that began a year ago may have run its course.

The Institute for Supply Management's factory index rose to 54.7 last month from 49.9 in January. A reading above 50 signals expansion, and the last time the index exceeded that level was July 2000. An index of new orders was the highest since October 1994 and the production index rose to a two-year high.

"Industry by industry there is some sense that things are improving," said Ralph Larsen, chief executive officer of Johnson & Johnson, in an interview at the Business Council meeting in Boca Raton, Florida. "Orders are a little firmer. Inventories are being rebuilt. So there's just a bit of a crack of sunshine."

Stocks soared and the dollar rose as the report provided evidence manufacturing has recovered from a slump that began in August 2000 and dragged the rest of the economy into recession last year. Separate reports showing increases in consumer spending, personal incomes and construction added to the optimism.

"Manufacturing appears to be bottoming out and that's obviously good for the economy," said Richard Clarida, assistant Treasury secretary for economic policy, in an interview.

The Dow Jones Industrial Average rose 263 points, or 2.6 percent, to close at 10368.86. The NASDAQ Composite Index rose 71 points, or 4.1 percent, to close at 1,802.75. The US currency strengthened to US$0.8653 per euro from 86.93 yesterday. It has risen 2.8 percent against the euro and 1.2 percent against the yen this year on speculation the US would pull out of recession before Europe or Japan.

Treasury securities fell as the factory gains suggested to investors that Federal Reserve policy makers may start raising interest rates to keep the economy from overheating. The 4 7/8 percent note maturing in 2012 fell 3/4 point, pushing up its yield 10 basis points to 4.98 percent. A basis point equals 0.01 percentage point.

In the manufacturing survey, 14 out of 20 industries reported growth, the group said. The index of new orders rose to 62.8 from 55.3, and was the third straight month showing a majority of companies reported higher orders. Orders for goods sold for export grew for a second straight month, the first time that's happened since August-September 2000. The production index rose to 61.2 from 52.

"Finally, we're starting to see some production increases," said JT Battenberg, chairman and chief executive of Delphi Automotive Systems Corp, in an interview yesterday with Bloomberg Television. "We're looking for a good first quarter and for a good year as the industry comes back."

Delphi is the biggest auto-parts maker.

General Motors Corp, the largest US automaker, this week boosted first-quarter and full-year production estimates because US sales are higher than expected. Ford Motor Co yesterday reported increased demand for new cars and light trucks and said it would delay production cuts at five plants.

Businesses reduced their stockpiles of unsold goods in every month except January last year, paring them in the fourth quarter at an annual rate of US$120 billion. That drop was twice the previous record of US$61.9 billion set in the third quarter.

Some manufacturers continue to reduce inventories, today's report showed.

At the same time, General Motors and other factories are asking workers to put in overtime, evidence they aren't using new hires to fill demand. The employment index showed factories reduced payrolls in February for a 17th straight month.

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