Manufacturing activity ready ‘to hit bottom’

The Associated Press
Friday March 02, 2001

NEW YORK — The nation’s manufacturing activity showed signs of hitting bottom in February as it extended its decline for a seventh month, a key industry group said Thursday. 

The report from the National Association of Purchasing Management supported the contention Wednesday by Federal Reserve Chairman Alan Greenspan that the downturn in the economy appeared to be slowing in the early months of 2001. 

Other reports issued Thursday showed improvements in personal income and construction spending, while a fourth survey charted a rise in first-time claims for unemployment insurance. 

The NAPM, an organization of corporate purchasing executives, said its index of business activity rose to 41.9 in February from 41.2 in January. 

An index above 50 signifies growth in manufacturing, while a figure below 50 means contraction. A level below 42.7 also generally indicates a contraction in the overall economy. 

The upturn in manufacturing followed a January figure that showed manufacturing at its lowest level since early 1991. 

The purchasing management group said that while the February reading means the overall economy contracted for the second consecutive month, the uptick in the index and its components might signal that the decline has reached its low point. 

However, “we must caution that it takes more than one month’s data to make that determination,” said Norbert J. Ore, who oversees the monthly survey for the NAPM. He noted that an important component of the index, new orders, showed a slower rate of decline, a more positive sign for manufacturers’ business. 

The new figure was roughly in line with analysts’ expectations and marked the seventh straight month of contraction in the manufacturing sector. Of the 20 industries in the manufacturing sector, only food and tobacco reported an improvement in business in February. 

The NAPM reading was one of four economic reports Thursday. The Commerce Department said Americans’ incomes rose sharply in January and spending shot up even more quickly as mild weather and deep discounts lured people into stores and malls. In addition, spending on construction projects in January posted the biggest increase in 10 months. With mild weather, spending rose for new homes, office buildings and highways. 

Those upbeat figures were countered by another report by the government that new claims for state unemployment insurance last week rose by 39,000 to 372,000, reflecting layoffs in automobile manufacturing and bad weather in some parts of the country. 

The economic figures did not dispel Wall Street’s gloom about the economy. The Dow Jones industrial average at early afternoon was down 159.13 at 10,336.15, while the Nasdaq composite index was down 55.60 at 2,096.23, a level not seen since December 1998. 

In his comments Wednesday, Greenspan had disappointed investors by largely dismissing the idea that the Fed might lower interest rates before its March 20 scheduled meeting. 

Economists were split in their views of the purchasing managers’ report. 


The report should not be interpreted as a sign the economy is in recovery, but it does show business is headed in a positive direction, said economist Sung Won Sohn of Wells Fargo & Co. in Minneapolis. 

“I would view this as a ray of hope,” Sohn said. 

David H. Resler of Nomura Securities International in New York said there was no way to see the report as good news. Instead, it shows the manufacturing sector continues to struggle, he said. 

“The reality is you cannot say we’ve stopped falling. We’re just not falling as fast,” Resler said.