Manufacturing Grows For 5th Month
By John M. Berry
Washington Post Staff Writer
Monday, July 1, 2002; 12:55 PM
The manufacturing sector of the U.S. economy is back on solid footing after a long swoon that began well before the overall economy slipped into recession early last year.
The Institute of Supply Management reported today that its index tracking changes in factory activity rose last month to 56.2, its highest level since February 2000. The monthly reading was the fifth in a row above 50, the point on the index at which manufacturing activity is neither contracting nor expanding.
Separate indexes for new orders and production have now topped 50 for seven consecutive months, with the production index reaching its highest level since June 1999. Even the index for employment, at 49.7 last month, has almost reached the break-even point of 50.
Analysts said the number of payroll jobs in manufacturing, which has dropped by 1.75 million--roughly 10 percent--over the past two years, could start increasing again soon. Strong gains in productivity and a longer workweek have allowed employers to boost production without hiring new workers.
"The manufacturing recovery continues to gain momentum," said economist Sung Won Sohn of Wells Fargo in San Francisco. "Strong new orders and production indices are driving the growth. The rebound is broad based with fifteen of twenty industries reporting expansion of production."
"A weaker dollar and stronger economic activity abroad is also helping export orders, which rose strongly as well," Sohn added.
The improved performance of factories is one reason forecasters say the economic outlook remains very positive even though overall economic growth slowed from a red-hot 6.1 percent annual rate in the first three months of the year to a much more moderate 2 percent to 3 percent pace in the quarter which ended yesterday. Most of the forecasters predict growth will accelerate somewhat in the second half of the year.
Meanwhile, the Commerce Department said that construction activity slowed in May, with private residential building off 0.7 percent from April, private non-residential construction down 3 percent and public construction up 2 percent.
Even with the May dip, residential building was up 7 percent in the first five months of the year, compared to the same months in 2001, while private non-residential construction plunged 16 percent for the same period, said Kenneth D. Simonson, chief economist for Associated General Contractors of America.
On the same year-to-date basis, industrial construction was down a huge 42 percent, office construction was off 28 percent and hotels and motel building fell 22 percent, Simonson said.
"The residential sector is the most encouraging," he continued. "The strong reports on May home sales, median sales price, housing starts and building permits, along with very low mortgage rates and continuing growth in personal incomes, all point to ongoing expansion. This activity, in turn, will aid contractors who do site clearing, street, utility, school, religious and neighborhood retail or institutional projects."
Some other analysts noted that the relatively poor figures for industrial and office construction did not signal that the economic expansion is in trouble. Construction of such projects, which often are cutback during a slump, are slower to recover than many other types of activity because of the long lead times involved for planning and permitting before construction begins, they said.
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