- The Washington Times - Thursday, January 3, 2002

NEW YORK (AP) A rise in new orders to factories helped push a key gauge of manufacturing activity higher in December, suggesting the sector is beginning to emerge from a 17-month slump, an industry group reported yesterday.
The Institute for Supply Management, formerly known as the National Association of Purchasing Management, said its index of business activity rose in December for a second straight month to a better-than-expected 48.2, up from 44.5 in November. Analysts had forecast a reading of 46.
Despite the improvement, the manufacturing sector shrank slightly for the 17th consecutive month. An index above 50 signifies expansion, while a figure below 50 shows contraction.
"What this is saying is that the sector is contracting at a slower pace than what it was before," said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis. "We really do think this is a real bottom for the manufacturing sector."
The increase raised hopes that a recovery in manufacturing may come faster than in previous major economic downturns, said Norbert J. Ore, who oversees the monthly survey for the Tempe, Ariz.-based ISM.
Economists were further encouraged by last month's reading of manufacturing activity since it surpassed the figure it had reached before the September 11 terrorist attacks in New York and Washington. In August, the index was 47.9.
"Most of us had said that the August survey was showing that we were coming to the end of the manufacturing recession," said David Orr, chief economist at Wachovia Corp. "What this is telling us that we've made up all of the ground lost as a result of September 11."
The ISM measure is closely tracked by economists because it offers an early reading on the health of the manufacturing sector. Its index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies.
Another telling signal that better times lie ahead for the sector, economists said, is that new orders to manufacturers rose to the highest level since April 2000, suggesting that manufacturing activity could pick up in the coming months.
"The most important part of the report was strength in new orders numbers, which is a precursor to an increase in production," said Sherry Cooper, global economic strategist at Harris Bank in Chicago.
The new orders index climbed to 54.9 in December from 48.8 in November, the latest evidence to date that the worst of the economic slump is over.
A batch of economic data released at the end of last week showed that home sales climbed, orders for many big-ticket items posted gains and consumer confidence rebounded.
The manufacturing sector had been particularly hard hit over the past year and a half, well before other segments of the economy started to weaken. The attacks accelerated the downturn in the economy, which officially sank into a recession in March.
The Federal Reserve has cut interest rates 11 times over the past year to keep the economy afloat.
Of the 20 industries tracked by the ISM, three reported overall growth last month, Mr. Ore said. They were leather, apparel and photographic instruments and equipment.


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