Posted on: Friday, April 2, 2004

Factories continue to expand, report says

By Adam Geller
Associated Press

NEW YORK — The manufacturing sector continued to rebound strongly in March, an industry group reported yesterday, raising the prospect of more hiring at the nation's factories.

The Institute for Supply Management said its manufacturing index registered 62.5 in March compared with a reading of 61.4 in February. The new reading was above the expectations of analysts, who had forecast a figure of 59.5.

An index reading above 50 indicates expansion, while one below 50 indicates that manufacturing activity is contracting.

The ISM report, and another by the Labor Department yesterday showing new claims for unemployment benefits declined slightly last week, suggest the job market may be improving, setting the stage for the government's release of March employment figures this morning.

"Almost all the indicators ... point to a healthy rebound in manufacturing, which has been the Achilles heel for the economy in the past three years," said Sung Won Sohn, chief economist for Wells Fargo & Co. "Even employment seems to have rebounded very nicely in the ISM report, indicating that businesses are producing in order to meet demand."

Analysts said the ISM report shows the manufacturing sector has sustained momentum, with new orders strong, backlogs of orders increasing and production ramping up.

"It's a good report," said Gary R. Thayer, chief economist with A.G. Edwards & Sons in St. Louis. "There was some concern in the markets that the strength (in manufacturing) early in the quarter might have faded in the end of the quarter, but that does not appear to be the case."

The report coincided with the government's tally yesterday of new claims for unemployment benefits, which edged down last week by a seasonally adjusted 3,000 to 342,000.

The government also reported that construction spending dipped 0.1 percent in February, following a 0.8 percent decline the month before.

Wholesale prices also moderated in February, edging up 0.1 percent after a sharp 0.6 percent rise in January. The new report shows inflation remains in check, even as the economy grows.

All of the 20 industries that comprise the manufacturing sector reported growth, ISM reported.

The group's measure of new orders declined 0.7 to 65.7 in March, still quite strong.

Production expanded for an 11th consecutive month, with the index registering 65.5, up from 63.9 in February.

"Our survey respondents generally indicate that business is quite strong," said Norbert J. Ore, chairman of the institute's manufacturing business survey committee.

ISM's employment index, closely watched in a sector that has been particularly slow to hire, grew for the fifth consecutive month. The index rose from 56.3 in February to 57 in March, its highest level in more than 16 years, with 11 of 20 industries reporting growing employment.

That is good news, but Sohn noted that the index has been rising for recent months with only minimal improvement in the employer payrolls tracked by the government.

An index measuring manufacturer's backlog of orders also increased in March to 63.5 from 62 the previous month, as the prices they paid for supplies climbed, ISM said.

Purchasing and supply managers surveyed for the report indicated that although they are concerned with higher cost of materials and energy, their priority is the availability of those goods, ISM said.