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.
Companies still have little ability to raise prices. The prices-paid index fell last month and has showed companies reporting lower prices for the past year.
The Tempe, Arizona, group surveys more than 400 companies in 20 industries, including clothing, printing, furniture and plastics. Manufacturing accounts for about one-sixth of the US economy.
Consumers' incomes and spending rose more than expected in January, a sign that demand for manufactured goods will increase in the months ahead. Incomes rose 0.4 percent last month, the largest gain in six months, and spending also increased 0.4 percent, the Commerce Department said. Analysts expected a 0.1 percent rise in incomes and a 0.3 percent gain in spending.
Strength of consumer spending has been responsible for the turnaround in manufacturing. Consumer spending grew at a 6 percent annual pace in the fourth quarter, the fastest since mid-1998, as no-interest loans caused auto sales to surge. Since then, consumer spending has fallen off less than expected.
Construction spending rose 1.5 percent in January, more than any other month in a year as work increased on homes and highways, the Commerce Department said.
A separate report from the University of Michigan showed consumer sentiment fell for the first time in five months in February, dropping to 90.7 for the month from 93 in January.
The decline in confidence may reflect questions about the security of retirement plans after revelations about deceptive accounting practices at Enron Corp, analysts said. The Standard & Poor's 500 Index on Jan. 29 posted its largest drop since September as investors expressed concern companies such as Tyco International Ltd and Williams Cos may have misstated profits.
WASHINGTON’S INCENTIVES: The CHIPS Act set aside US$39 billion in direct grants to persuade the world’s top semiconductor companies to make chips on US soil The US plans to award more than US$6 billion to Samsung Electronics Co, helping the chipmaker expand beyond a project in Texas it has already announced, people familiar with the matter said. The money from the 2022 CHIPS and Science Act would be one of several major awards that the US Department of Commerce is expected to announce in the coming weeks, including a grant of more than US$5 billion to Samsung’s rival, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), people familiar with the plans said. The people spoke on condition of anonymity in advance of the official announcements. The federal funding for
HIGH DEMAND: The firm has strong capabilities of providing key components including liquid cooling technology needed for AI servers, chairman Young Liu said Hon Hai Precision Industry Co (鴻海精密) yesterday revised its revenue outlook for this year to “significant” growth from a “neutral” view forecast five months ago, due to strong demand for artificial intelligence (AI) servers from cloud service providers. Hon Hai, a major assembler of iPhones that is also known as Foxconn, expects AI server revenues to soar more than 40 percent annually this year, chairman Young Liu (劉揚偉) told investors. The robust growth would uplift revenue contribution from AI servers to 40 percent of the company’s overall server revenue this year, from 30 percent last year, Liu said. In the three-year period
LONG HAUL: Largan Energy Materials’ TNO-based lithium-ion batteries are expected to charge in five minutes and last about 20 years, far surpassing conventional technology Largan Precision Co (大立光) has formed a joint venture with the Industrial Technology Research Institute (ITRI, 工研院) to produce fast-charging, long-life lithium-ion batteries for electric vehicles, mobile electronics and electric storage units, the camera lens supplier for Apple Inc’s iPhones said yesterday. Largan Energy Materials Co (萬溢能源材料), established in January, is developing high-energy, fast-charging, long-life lithium-ion batteries using titanium niobium oxide (TNO) anodes, it said. TNO-based batteries can be fully charged in five minutes and have a lifespan of 20 years, a major advantage over the two to four hours of charging time needed for conventional graphite-anode-based batteries, Largan said in a
Taiwan is one of the first countries to benefit from the artificial intelligence (AI) boom, but because that is largely down to a single company it also represents a risk, former Google Taiwan managing director Chien Lee-feng (簡立峰) said at an AI forum in Taipei yesterday. Speaking at the forum on how generative AI can generate possibilities for all walks of life, Chien said Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) — currently among the world’s 10 most-valuable companies due to continued optimism about AI — ensures Taiwan is one of the economies to benefit most from AI. “This is because AI is