U.S. Manufacturers Ease Their Foot Off the Gas : Economy: February figures indicate a gradual slowdown of growth. Fears of high inflation recede.
The nation’s red-hot industrial sector, a source of inflation worries for government and investors, is showing signs of cooling off a bit.
The National Assn. of Purchasing Management said Wednesday that its index of manufacturing activity fell last month to 54.5--the lowest reading since November, 1993--from 57.9 in January. A reading of 50 or more indicates expansion of the manufacturing portion of the economy.
Analysts said the decline, from a peak reading of 60 in November, lines up with other recent reports indicating a slowing of economic growth--among them declining monthly gains in retail sales and a substantial drop in housing sales and building.
The index component for new orders to factories fell to 55.3 from 59.5 in January, down substantially from 64.2 last October.
“We may be seeing some deceleration” of last year’s rapid economic growth, J. Alfred Broaddus Jr., president of the Richmond Federal Reserve Bank, told reporters after a speech to the National Assn. of Business Economists. “There is a very good prospect, given the action we have taken over the past year, that we will contain inflation.”
Over the past 12 months, the Federal Reserve Board has pushed short-term interest rates to 6% from 3%, citing a need to slow growth and dampen inflation. Fed Chairman Alan Greenspan and some other central bank officials have indicated that rates may not be raised further if economic expansion slows as they expect.
The strength of the economy through the end of 1994 was underscored Wednesday as the Commerce Department revised its estimate of the growth rate for the final three months of 1994 to 4.6% from 4.5%.
While the revision was small, the Commerce Department said fewer U.S.-made goods were left unsold on shelves than was originally estimated. On the basis of additional data, the department said consumer spending rose at a 5% rate rather than the 4.6% shown in the first report, and that exports rose at a 20.1% pace, not the 14.2% estimated earlier.
Meanwhile, the Commerce Department also said Wednesday that construction spending fell 0.2% in January after rising 1.1% in December. Private construction outlays were down 0.5%, while public spending rose 0.7%. Most of the private-sector decline was in single-family houses, where higher interest rates have cut demand.
Some analysts said the revised business inventories figure for last month could mean that manufacturers will have to trim production schedules less than had been expected. Usually, low inventories would be seen as a plus for growth and raise questions about the extent of any slowing of growth in the first half of the year.
However, with consumer spending seeming to rise less rapidly than it did late last year, the smaller supply of unsold goods could smooth the transition to a slower pace of economic expansion.
Some Fed officials, for instance, have expressed concern that an abrupt slowdown could occur from too-rapid reduction of inventory.
A measure of the prices manufacturers paid for raw materials and parts also declined slightly but still remained high. Last month, 83.4% of the producers surveyed said they were paying higher prices, down from 87.1% in January and 87.5% in December.
The overall price decline was consistent with recent prices for some basic industrial commodities such as copper and lumber--a further sign of slowing growth.
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Construction Spending
In billions of dollars, seasonally adjusted:
Jan. 1995: $529.70
Source: Commerce Department
Purchasing Managers Index
The index tracks business activity at more than 300 industrial companies:
54.5%
Source: National Assn. of Purchasing Management
