U.S. sector grows for first time in months


Published: Friday, January 3, 2003 at 6:01 a.m.
Last Modified: Thursday, January 2, 2003 at 9:56 p.m.

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.

Facts

Future concerns

Some analysts won't put too much stock in the report because it was just one month and uncertainties still loom, including a possible war with Iraq and North Korea as well as rising oil prices.

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

Still, financial markets surged on the upbeat manufacturing report and an announcement by President Bush that he will unveil an economic-stimulus package next week that creates jobs and benefits all Americans.

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," Watt said. "They are not adding staff and won't be over the next six to eight months."

Norbert J. Ore, who oversees the ISM'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," 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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