- The Washington Times - Monday, August 4, 2003

ASSOCIATED PRESS

America’s manufacturers saw demand for their products rise in June by the largest amount in three months, another encouraging sign that the fragile factory sector is on the mend along with the rest of the economy.

The Commerce Department reported yesterday that orders to U.S. factories rose 1.7 percent from May, the second month in a row that orders went up. Gains were fairly broad-based, with orders rising for machinery, household appliances and automobiles as well as “nondurable” goods, such as food products and chemicals.

June’s performance, which followed a 0.3 percent rise in May, was stronger than economists were expecting; they were forecasting a 1.5 percent increase in factory orders.

Yesterday’s report, along with other recent data on factory activity, suggest the industry is turning a corner.

A report released Friday showed that manufacturing expanded in July for the first time in five months. The Institute for Supply Management’s manufacturing index rose to 51.8 in July, up from 49.8 in June. A reading below 50 indicates that manufacturing activity is slowing, and a reading above 50 indicates it is growing.

“Manufacturing is healing,” said Clifford Waldman, an economist at the Manufacturers Alliance/MAPI, a research group. “But it is not entirely clear to me that we can yet say we reached a new cycle of self-sustaining expansion. Some of this reflects a bounce back from the war period and pent-up business demand.”

Manufacturing has had the hardest time trying to get back on firmer footing after being knocked down by the 2001 recession. Faced with lackluster demand at home and abroad as well as competition from a flood of imports, factories have throttled back production and cut jobs.

Even with indications that manufacturing is picking up, employment in that sector isn’t expected to show improvement anytime soon, economists say. The sector lost 71,000 positions in July, marking the 36th month in a row of job losses.

Productivity gains in manufacturing have meant factories can produce more with fewer people, a factor in the sector’s job losses. Economists say employers will be wary about hiring back some workers until they are certain the economic recovery has staying power.

With scattered signs that the economy is getting better, the Federal Reserve probably will hold a key short-term interest rate at a 45-year low of 1 percent at its next meeting on Aug. 12, analysts said.

Near rock-bottom short-term interest rates combined with fatter paychecks and other tax incentives coming from President Bush’s third round of tax cuts may spur consumers and businesses to spend and invest more, helping to lift the economy in the second half of this year.

Fed Chairman Alan Greenspan and private economists are hopeful that the economy will stage a solid rebound in the current third quarter and the final quarter of this year. Some project the second-half growth rate to range from 3 percent to just more than 4 percent.

Yesterday’s report showed that orders for all “durable” goods, costly manufactured items expected to last at least three years, rose 2.6 percent in June. That was the biggest gain in nearly a year, up from a tiny 0.1 percent increase in May. For nondurables, orders increased 0.7 percent in June, on top of a 0.6 percent increase in May.

“As companies see sales strengthening, we expect them to begin rebuilding scarce inventories and thus to provide a good lift to growth later this year,” said Maury Harris, chief economist at UBS Investment Research.

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