Manufacturing Index Ends 11-Month Slide
A gauge of U.S. manufacturing rose in February for the first time in a year and car and truck sales exceeded expectations, encouraging signs for the nation’s uncertain economy.
The National Assn. of Purchasing Management’s factory index rose to 41.9 last month from 41.2 in January, breaking a string of 11 consecutive declines, though the index remained in territory that indicates a manufacturing recession.
Similarly, while February vehicle sales by General Motors Corp., Ford Motor Co. and DaimlerChrysler fell from the record levels of a year ago, they held up better than forecast.
Those statistics and a separate report showing strong construction spending supported Wednesday’s comments from Federal Reserve Chairman Alan Greenspan that growth might rebound. In the fourth quarter, the economy grew at the slowest pace in 5 1/2 years.
“The hemorrhaging may have stopped,” said Richard Yamarone, senior economist at Argus Research Corp. in New York. Still, “it’ll be slow going for the next four or five months.”
A figure in the NAPM index below 50 signals contracting business at factories; the index hasn’t been above that point since July of last year. That’s why investors are betting Fed policymakers will cut their benchmark interest rate half a percentage point more at their March 20 meeting to keep the economic expansion going.
The February new orders component of the NAPM index rose to 40.8 from 37.8 in January, signaling manufacturing might improve in coming months. It is “excellent news to see some bottoming in the new orders component,” said Steven Wieting, economist at Salomon Smith Barney Inc. in New York. “This is one of the things that could stabilize the rest of the economy.”
New orders carry the greatest weight and account for 30% of the overall index. NAPM’s production index rose to 39.7 from 37.9 in January. The report also showed inflation is less of a concern for manufacturers. An index of prices paid for raw materials fell to 58.1 in February from 65.7.
Fed policymakers point out manufacturing is mainly responsible for the economic slowdown as production cuts whittle away at excess inventory that accumulated amid slowing demand.
“Based on the rate of decline in February, that gives rise to the potential that January was the bottom for our industry,” said Norbert Ore, chairman of NAPM’s business survey committee.
The Commerce Department on Thursday reported a 0.7% increase in January spending on goods and services. That was up from a 0.4% December increase. It also showed a 0.6% increase in January incomes after a 0.4% rise in December.
Construction spending rose 1.5% in January, the biggest rise since a 1.7% jump in March 2000, led by more work on single-family homes, the department reported.
Ford’s vehicle sales were 11% lower in February than a year earlier, when a record 354,380 cars and trucks were sold.
At General Motors, vehicle sales in the U.S. fell 9.4% last month to 409,535 units. February 2000 was the industry’s second-best ever. DaimlerChrysler’s Chrysler sales also fell 11%, about half the decline expected. Industrywide sales fell an estimated 11% for the month, a better performance than many analysts expected.
The employment outlook continued to weaken. The NAPM’s employment index, a gauge of hiring plans and labor market conditions accounting for 20% of the index, fell to 37.2 in February from 43 a month earlier. The index has declined for five straight months, the first time that’s happened since April to August 1973.
Separately, the Labor Department reported initial jobless claims rose by 39,000 to a level of 372,000 last week, the highest this year.
