Manufacturing's Plummet May Preview More Weakness

By John S. McClenahen Following four months of expansion, the manufacturing sector of the U.S. economy contracted sharply in March. The Institute for Supply Management's (ISM) manufacturing index fell to 46.2% last month, 4.3 percentage points below its February mark of 50.5% and well below the 49% that economists generally expected. An index figure above 50% indicates U.S. manufacturing overall is expanding; a figure below 50% signals contraction. "March wasn't a good month for manufacturing, as the sector appears to have lost its momentum," says Norbert J. Ore, chairperson of ISM's manufacturing business survey committee and group director of strategic sourcing and procurement at Georgia-Pacific Corp. Significantly, new orders and production, two closely watched elements of the 10-element index, did more than lose momentum in March. They reversed course. At 46.2%, new orders fell below the 50% tipping point after six months of growth. And at 46.3%, production was below 50% for the first time in 16 months. The war in Iraq appears to have slowed demand in a number of industries, including chemicals, electronics and industrial equipment, notes ISM. "For the moment, the near-term risks are on the down side of our forecast [for] 2.5% growth in the first half of 2003," says Maury Harris, chief economist at UBS Warburg LLC, New York. "Declining production activity in manufacturing means that the overall economy cannot hope to achieve anything better than [to] tread water in the months ahead," judges Daniel J. Meckstroth, chief economist at Manufacturers Alliance/MAPI, an Arlington, Va.-based business policy group.

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