Manufacturing in the Chicago area expanded at a slower pace in February, a survey of purchasing executives showed, as the threat of war with Iraq and higher oil prices weighed on the US economy.
The National Association of Purchasing Management-Chicago's factory index fell to 54.9 from 56 in January. Readings greater than 50 mean business expanded at the region's factories, and numbers lower signify contraction.
"The soft spot that we saw in late 2002 is over," said Brian Wesbury, chief economist with Griffin Kubik Stephens & Thompson, a bond underwriter in Chicago. Wesbury's forecast for a reading of 54.8 in yesterday's report tied for most accurate in a Bloomberg News survey of 50 economists. "We're seeing some signs that the collapse in capital investment has come to an end. Manufacturing activity has strengthened."
Chicago companies are increasing production to fill new orders after cutting stockpiles for 35 months, the longest inventory reduction since World War II ended. Investors watch the index for clues about US manufacturing because the region has more factory jobs than any other US metropolitan area.
Separately, the Commerce Department reported that the economy grew at a 1.4 percent annual rate in the fourth quarter, twice the pace reported a month ago, as companies expanded inventories more than estimated. Wesbury said today's purchasing managers report suggests growth has accelerated to about 3 percent in the current quarter.
A University of Michigan survey found that consumer confidence declined this month to the lowest in more than nine years because of pessimism about the economy's current and future prospects.
Other reports on US factories have shown strength so far this year. Last month's national survey of purchasing managers showed growth for a third straight month. The Commerce Department yesterday said durable goods orders rose 3.3 percent in January, while January industrial production posted the biggest gain in six months. Philadelphia-area factories continued to recover at a slower pace this month.
The Institute for Supply Management's national factory index for January will probably slip to 52.2 from 53.9 when the report is issued Monday, based on a Bloomberg poll of 22 economists.
Economists polled by Bloomberg News expected the Chicago index to slip to 52.5. The survey's prices-paid index rose to 54.9 from 54.2. Crude oil prices have surged 38 percent over the past three months as the threat of war in Iraq intensified and as Venezuelan oil workers staged a strike aimed at ousting President Hugo Chavez. Natural gas prices have jumped 78 percent over the same period.
The production index fell to 62.4 this month from 63.1 in January. Production has been increasing for more than a year after declining for all of 2001. The index of new orders increased to 59 from 58, while the index of order backlogs slipped to 44.6 from 46.1 last month.
Factories have also been cutting stockpiles since March 2000.
The inventories index rose to 46.2 from 44 in January.
Amid these signs of strength, workers continue to face tough times. The group's employment index increased to 46.6 from 45.6. The region's factories have been cutting jobs since March 2000, the longest decline in two decades. The below-50 readings signal job and inventory reductions.
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