Tuesday, June 3, 2003

Manufacturing declines, but outlook improving

By Adam Geller
The Associated Press

NEW YORK - The beleaguered manufacturing sector saw business activity decline again in May, but new data suggest that it could finally be poised for recovery.

The Institute for Supply Management, an industry group, said Monday that its manufacturing index rose to 49.4 percent last month, up from 45.4 in April. The reading signals a continuing decline in manufacturing business activity, but at a considerably slower rate.

The reading marked the third consecutive month of decline. An index below 50 means manufacturing activity is slowing; above 50 indicates the industry is growing. But it topped the expectations of analysts and fueled speculation of a coming rebound in manufacturing.

"It does suggest the manufacturing sector is recovering," John Silvia, chief economist for Wachovia Corp., said. "It appears as if the orders are there, and there are backlogs behind these orders so that there's some sustainability in terms of economic growth going forward."

The relatively upbeat tone of the ISM report contrasted with figures released by the government Monday showing a dropoff in construction spending.

The Commerce Department said the value of construction projects declined by 0.3 percent in April to a seasonally adjusted annual rate of $862.6 billion, the third consecutive month of falling construction spending. That was weaker than expected by economists, who had forecast a 0.2 percent increase.

But investors appeared to focus mostly on the manufacturing data, pushing stocks sharply higher after the report's release.

Silvia said the ISM figure for May counters a report last week by the government showing that orders to U.S. factories for durable goods dropped in April.

"There are signs of life in manufacturing," said Norbert J. Ore, who oversees the index for ISM.

Ore noted that his group's gauge of new orders to factories and production both topped 50 percent after two months of declines and that the prices paid by manufacturers for materials rose at a much slower rate.

Investors had been looking forward to improved results following the release Friday of better-than-expected manufacturing figures. Those figures, reported by the Purchasing Management Association of Chicago, often foreshadow results of the national survey.

The last time the ISM index showed growth in manufacturing was in February, when it reached 50.5.

Of the 20 industry sectors surveyed by ISM, 11 reported growth including petroleum, glass, stone and aggregate materials; chemicals; and fabricated metals.

The ISM index is based on a survey of the managers who buy raw materials for manufacturing companies, giving them insight into the pace of industry.

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