Friday, January 3, 2003

U.S. manufacturing grows

Plus is first in 4 months; local survey shows decline

By Rebecca Gomez
The Associated Press
and Mike Boyer
The Cincinnati Enquirer

NEW YORK - The U.S. manufacturing sector grew in December for the first time in four months, stimulated by a surge in new orders, a private industry group reported Thursday. However, some question whether the growth can be sustained.

The Institute for Supply Management said its index of business activity hit 54.7 in December, much higher than November's 49.2 reading and the first time the index has been over 50 since August. A reading above 50 means the manufacturing sector is growing; below 50 indicates it's contracting.

Analysts had forecast the index to come in at 50.1 for December.

"It's very welcome news," said David Watt, financial economist of BMO Nesbitt Burns. "We were expecting a number closer to 50."

However, Mr. Watt said not to put too much stock in the reading because it was just one month and uncertainties still loom, including possible war as well as rising oil prices.

Some Greater Cincinnati manufacturers say business is picking up and they expect this year to better than last year.

"Things are lining up for a good 2003,'' said Daniel Cunningham, president of Long-Stanton Manufacturing Co., a Hamilton metal stamping company. The privately held company's sales increased 10 percent last year, and Mr. Cunningham expects to beat that this year.

"Since August, we've seen a steady increase in demand for new (stamping) tools,'' he said, a sign that customers are stepping up their order activity.

Likewise, American Micro Products Inc., a precision parts maker in Clermont County, is seeing signs of increased activity. Sales in 2002 were basically flat with what President Pierre Paroz said was a "disastrous'' 2001.

"I'm optimistic,'' he said, estimating that the company's sales will increase 10 percent or more this year.

"We're seeing a lot more people kicking tires (talking about placing orders) with our company.''

After cutting about 60 jobs, reducing its payroll to 109, American Micro Products hopes increasing activity will allow it to add 12 jobs this year.

The results of the national index differed from the regional survey of business activity released Tuesday by the National Association of Purchasing Management's Cincinnati chapter, which showed a decline in December from November.

The variation, in part, reflects timing differences between the national and regional surveys which compare purchasing managers' sentiment from one month to the next said Charles Wright, who compiles the Cincinnati index.

For example, the national index showed a sharp increase in new orders in December, while the regional survey showed a slight decrease in December.

But Mr. Wright said that reflected the fact that the regional index showed an increase in November which the national index didn't reflect.

In addition, he said, the national survey includes some industries such as chemicals and textiles, which aren't significant in Greater Cincinnati.

The jump in the national index shows that the long-depressed manufacturing sector is finding its feet, said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

But a surge in new orders to factories, while encouraging, is mostly born of necessity as worn-out products are replaced, rather than spurred by a rebound in business investment, he said.

"There is an unprecedented amount of uncertainty facing us in the future, including a possible war against Iraq. As a result, businesses are reluctant to hire people, to build inventories and they want to stay flexible, loose and liquid," Mr. Sohn said.

"I wouldn't necessarily assume that this is going to be sustained if uncertainties continue."

Local manufacturers say some of their activity is coming from customers who are unhappy with their existing suppliers.

"Manufacturers are raising the bar in terms of quality and delivery time,'' Mr. Cunningham said.

The news came as the Labor Department reported that the number of newly laid-off Americans filing claims for unemployment benefits rose by 13,000 last week to 403,000 after declining for two consecutive weeks. The number was in line with analysts' expectations.

"The employment index came back a little bit, so manufacturers are still trimming payrolls," Mr. Watt said. "They are not adding staff and won't be over the next six to eight months."

Norbert J. Ore, who oversees the Institute for Supply Management's monthly manufacturing survey, said the increase in the new orders index - from 49.9 percent to 63.3 - only partly explains the sudden jump in manufacturing activity.

"The magnitude of the improvement is somewhat difficult to explain at this point," Mr. Ore said.

"The question at this point is whether the manufacturing sector can continue to gather momentum during the first quarter of 2003."

Of the 20 industries surveyed by ISM, 11 reported growth, including food, leather, instruments and photographic equipment, as well as printing and publishing.

The ISM report is closely followed by economists because it offers an early reading on the health of the manufacturing sector. The index is based on a survey of executives who buy the raw materials for manufacturing at more than 350 companies.

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