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The Honolulu Advertiser
Posted on: Wednesday, June 6, 2001

Non-factory business falls again

 •  Charts: Productivity and factory orders the last couple of years

USA Today

In another troubling sign for the slumping economy, the nation's non-manufacturing sector — which had been expanding while factories fell into recession — contracted for the second month in a row in May.

Fresh data from the National Association of Purchasing Management (NAPM) yesterday showed that the non-manufacturing business activity index — which measures non-factory businesses such as transportation, communications, utilities and insurance — fell to 46.6 in May from 47.1 in April. Any reading below 50 signals that the sector is contracting.

NAPM's factory index has posted 10 sub-50 readings in a row since August, and analysts say the back-to-back sub-50 readings in NAPM's non-factory index are not a good sign.

"The April and May data signal that the weakness in the manufacturing sector is spilling over into non-manufacturing," says Dana Saporta of Stone & McCarthy Research Associates.

Other economic news yesterday offered little cheer:

Factories. New orders for manufactured goods fell 3 percent in April, according to the Commerce Department, providing further evidence that the factory sector remains mired in recession. The report showed that the crucial inventory-to-sales ratio rose from 1.38 to 1.42, signaling that despite their efforts to unload huge backlogs of unsold goods, factories have been only partially successful.

Productivity. In a revision to prior data, the Labor Department said productivity fell at an annual rate of 1.2 percent in the first three months of this year, a much sharper drop than the minus 0.1 percent first reported.

Productivity measures worker output per hour, and it has been one of the key ingredients in the long-running economic boom, dampening inflation and raising living standards.

The sharp drop in the first quarter looks like terrible news, but it was close to what economists expected after statisticians revised first-quarter economic growth from 2 percent to just 1.3 percent.

Economists expected productivity to slow as the economy slumped.

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