Manufacturing Growth Encouraging

March 1, 2007
ISM reports new orders, production and employment growing.

Economic activity in the manufacturing sector expanded in February following a decline in January, while the overall economy grew for the 64th consecutive month, according to the latest ISM report releasead on March 1. The manufacturing economy returned to growth in February as the PMI registered 52.3%, an increase of 3% when compared to January's seasonally adjusted reading of 49.3%.

"The ISM report on manufacturing activity gives an encouraging first look at industrial activity in February," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "Manufacturing production declined in fourth quarter 2006, and production also fell in January 2007.

Many commentators worry about a prolonged decline in manufacturing and the possibility that the weakness will spread to the economy at large. The recent weakness was most likely an adjustment period to excessive inventory accumulation and declining demand in a few major markets, like housing and motor vehicles and not a systemic weakening.

"Manufacturing production will decelerate in its rate of growth this year, but the sector as a whole is expected to post modest production growth," Meckstroth added.

The industries that showed growth in February included plastic and rubber products, computer and electronic products and chemical products.

New orders registered 54.9% in February, while the production index was measured 5.41%. Inventories contracted for the seventh consecutive month in February registering 44.6%, up 4.7% from January's totals.

The ISM Prices Index registered 59%, indicating manufacturers are paying higher prices on average when compared to January. While 32% of respondents reported paying higher prices and 14% reported paying lower prices, 54% of supply executives reported paying the same prices as the preceding month.

The backlog of orders index was at 51.5%, 8 points higher than January. The Index indicates manufacturers' order backlogs are now growing after five consecutive months of contraction.

Export orders were at 54% in February, an increase of 1.5% compared to January. This is the 51st consecutive month of growth in export orders. Products. While imports of materials by manufacturers grew during February to hit 61.5%. The index is seven points higher when compared to January, making this the 62nd consecutive month of growth in import orders.

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