Manufacturing sector declined again in December, but numbers better than analysts expected

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Posted 1:45PM on Wednesday, January 2, 2002

NEW YORK - Manufacturing activity shrank for the 17th consecutive month in December, but not as much as analysts expected, raising the prospect that the struggling sector is poised for a rebound, an industry group reported Wednesday. The Tempe, Ariz.-based Institute for Supply Management, formerly known as the National Association of Purchasing Management, said its index of business activity rose to 48.2 in December from 44.5 in November. Analysts had been expecting a reading of 46. An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction. "While the manufacturing sector continues to decline, the rate of decline has slowed very quickly, giving some hope that recovery may come faster than is generally found in a major downturn," said Norbert J. Ore, who oversees the monthly survey for the group. Economists were further encouraged by last month's reading of manufacturing activity since it surpassed the figure it had reached before the Sept. 11 terrorist attacks. In August, the index was 47.9. The improvement suggests that the decline in the manufacturing sector may finally be coming to an end. "Most of us had said that the August survey was showing that we were coming to the end of the manufacturing recession," said David Orr, chief economist at Wachovia Corp. "What this is telling us that we've made up all of the ground lost as a result of Sept. 11." Another signal that better times may lie ahead, Orr said, is that new orders to manufacturers rose to the highest level since April 2000, suggesting that manufacturing activity could pick up in the coming months. Still, stocks were lower following the release of the report, with the Dow Jones industrial average off 36 points at 9,985 at early afternoon and the Nasdaq composite index down 3 points at 1,947. The business activity index is closely tracked because it offers an early reading on the health of the manufacturing sector. Its index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. The manufacturing sector has been particularly hard hit over the past year and began its decline long before other segments of the economy. But signs have recently emerged indicating that the worst of the slump has ended. A batch of economic data released at the end of last week showed that home sales climbed, orders for many big-ticket items posted gains and consumer confidence rebounded. Ore said he was encouraged that two industries, electronic components, equipment and instruments and photographic equipment, saw growth in new orders in December. He said the improvement is one of the first indications that recovery in the technology sector may have begun.