U.S. Manufacturing Grows At A Slower Pace

ISM's Economic Activity Index Dips To 55.3% In February.

The manufacturing sector of the U.S. economy continued to grow in February, as it has for 21 consecutive months. However, according to data released March 1 by the Tempe, Ariz.-based Institute for Supply Management (ISM), the pace of growth eased off to an index figure of 55.3%, more than a percentage point below both January's revised figure of 56.4% and economists' forecast of 56.9% in February.

A figure above 50% indicates that the manufacturing sector of the economy generally is growing; a figure below 50% signals that the sector is contracting.

Among manufacturers, new orders, production and employment still grew in February, but more slowly than in January. New orders were down seven-tenths of a percent to 55.8%. Production fell to 56.7% in February, down 1.1 percentage points from January. And employment fell seven-tenths of a percentage point to 57.4%. One positive sign: Inventories moved from 52.8% in January, which indicated they were growing, to 48.6% in February, a sign they were contracting. "This reduces possible concerns about involuntary inventory build," says Norbert J. Ore, chair of ISM's manufacturing business survey committee.

Meanwhile, a study from PricewaterhouseCoopers (PwC), a business services firm, says U.S. manufacturers remain upbeat about the economy even as they are increasingly concerned about foreign competition, energy prices, currency exchange rates and decreasing profitability. An impressive 84% of the 76 senior manufacturing executives PwC recently surveyed believe the U.S. economy is still growing and 82% say they are optimistic about the U.S. economy's prospects during the next 12 months. However, they see foreign competition, energy prices, exchange rates and decreasing profitability as substantial threats to future economic growth, and they've started scaling back revenue targets, new investments and hiring plans. They have, for example, reduced projected revenue growth during the next 12 months to an average of 7.8% from the 9% average they foresaw three months ago.

According to the Manufacturers Alliance/MAPI, an Arlington, Va.-based business research and public policy group, 15 of the 27 manufacturing industries it surveys were in the recovery phase of the business cycle at the end of 2004. Aerospace was in the early stage of recovery. Industrial machinery, basic chemicals, mining and energy machinery, and pharmaceuticals were at the mid point of recovery. And 10 others -- including instruments, power equipment, material handling equipment, iron and steel products, electrical equipment and paper -- were nearing the peak of their growth.

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