- The Washington Times - Friday, January 3, 2003

The Dow Jones Industrial Average soared 266 points yesterday after a report showed that the beleaguered manufacturing sector surged back to life last month.
Accompanied by news of likely tax cuts for investors and a settlement in an Enron-inspired lawsuit, the report stoked hopes that 2003 will bring better news for the downtrodden market.
“The new year began with a bang,” said Larry Wachtel, vice president of Prudential Securities.
The report from the Institute of Supply Management showed the biggest jump in manufacturing activity in more than 11 years.
The market was especially impressed with a giant increase in orders that will keep factories humming for months.
“Manufacturing has been the major laggard in the economy, so any sign of revival becomes larger than life,” Mr. Wachtel said. Economists had predicted a mild increase in the manufacturing index. Some doubted that the strong gains seen last month would last for long.
For now, at least, the stirring of economic activity was an elixir for the markets. With more than three stocks rising for every one that fell on the New York Stock Exchange, the Dow ended up more than 3 percent at 8,608. The Nasdaq Composite Index surged 49 points, or nearly 4 percent, to 1,385.
It was the market’s best start since 1988. The news also drove the dollar higher against the euro and yen and sparked a stock rally in Europe.
“Investors could not have gotten a better New Year’s gift than this one,” said Joel Naroff of Naroff Economic Advisers, noting that the manufacturing report is closely followed by the Federal Reserve and is no doubt being cheered there, as well as on Wall Street.
Several components of the report show that manufacturers continued to struggle and lay off workers in an effort to become profitable, he said, so investors should watch for confirmation of the long-awaited rebound.
Spurring the manufacturing renaissance were orders from businesses seeking to replenish their stocks and replace outdated equipment.
The increase may have been exaggerated last month because “use it or lose it” budget practices at some corporations may have prompted some managers to make purchases at the end of the year, Mr. Naroff said.
“It is much too soon to conclude that manufacturing is out of the woods” after suffering through one of the worst industrial recessions in history, he said.
Any lingering doubts about the health of the industrial sector did not prevent major manufacturers from being big winners on Wall Street yesterday. 3M rose $3.45 to $126.75, and Caterpillar climbed $2.03 to $47.75.
Merck rose $1.64 to $58.25 after the Food and Drug Administration approved the drug maker’s allergy drug Singulair for relief of hay fever.
A second report published by the Labor Department yesterday showed that joblessness in manufacturing and elsewhere continues to be a problem, with first-time claims for unemployment benefits averaging more than 400,000 a week in the past month.
Also yesterday, oil prices rose on news that the strike by Venezuelan oil workers has driven inventories of crude oil in the United States to a 26-year low.
But the stock market chose to ignore the gloomier news and focus instead on the resolution of a legal cloud overshadowing J.P. Morgan Chase and Co., a top lender to bankrupt Enron Corp.
The bank’s stock jumped $1.78 to $25.44 after it announced a settlement in which 10 insurers agreed to pay 60 percent of its $1 billion in Enron-related losses.
“It’s always good when an industry leader gets an overhang of bad news behind it,” said George Foley, a money manager at Glenmede Trust Co. “It tends to help an industry group and, sometimes, the whole market.”
Also improving the climate for stocks is a likely proposal from the White House next week to cut the taxes that stockholders pay on dividend income.
Analysts say that will increase the attractiveness of stocks compared with bonds and other investments.
Manufacturers also stand to benefit from further investment tax breaks for businesses that the White House reportedly is considering, which could build on generous investment depreciation rules that Congress passed last year.
President Bush stressed yesterday that increased investment is needed to spur growth and hiring by businesses. He said his economic stimulus package also will include extended benefits for the unemployed, who are facing difficulties finding jobs as businesses continue to cut payrolls.
“As the new Congress convenes in Washington, prospects seem good for more investment-friendly policies,” brightening the outlook for the markets and the U.S. economy, said John Park of Kudlow & Co.

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