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Manufacturing Index Leaps; Can U.S. Sustain December's Gain?

By John S. McClenahen To just about everyone's surprise, the closely watched manufacturing index compiled by the Tempe, Ariz.-based Institute for Supply Management (ISM) rose 5.5 percentage points in December to 54.7%. Economists generally expected a gain of less than one percentage point to 50% in December from November's 49.2%. "The question at this point is whether the manufacturing sector can continue to gather momentum during the first quarter of 2003," says Norbert J. Ore, group director of strategic sourcing and procurement at Georgia-Pacific Corp. and chairperson of ISM's manufacturing business survey committee. "A strong rebound in new orders in late 2002, as indicated by the latest survey, signals the return to recovery in the industrial sector," believes Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, an Arlington, Va.-based business policy group. "Companies may have been too cautious in ordering and controlling inventories last autumn as the [West Coast] dock shutdown and the steep slide in stock values loomed large," suggests Maury Harris, chief U.S. economist at UBS Warburg, New York. "In addition, the rebound may reflect the renewed slide in the U.S. dollar, which is improving U.S. competitiveness." On the ISM manufacturing index, a number above 50% indicates that the manufacturing sector of the U.S. economy generally is expanding; a reading below 50% signals contraction.

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