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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (38756)	2/1/2000 2:14:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

ANALYSTS: NAPM CONFIRMS ECON MOMENTUM, INFLATION IN PIPELINE By Steven K. Beckner Market News International - Going into their two-day meeting just as the economic expansion was setting a record for longevity, Federal Reserve policymakers got fresh forebodings from the National Association of Purchasing Management that the economy's continued momentum could increase inflation. Fed watchers said the NAPM report will tend to confirm the Federal Open Market Committee's inclination to raise short-term interest rates. The NAPM announced that its index of industrial activity dipped marginally from 56.8 to 56.3, but for the fifth straight month it remained above the 55 level. A 50 level signifies expansion in the manufacturing sector, and any number above 42.4 is considered consistent with overall economic strength. The production component slipped from 59.0 to 55.9, and employment dipped from 54.6 to 52.7, but the new orders index moved up from 59.6 to 60.4. Inventories rose from 47.8 to 53.4. And there was a jolting increase in the prices paid component from 68.3 to 72.6, as 17 of 20 industries reported paying higher prices in January. It was the highest level for the price index since April 1995's reading of 74.5. Adding to the impression of robust economic momentum, the Commerce Department reported that construction spending rose a larger than expected 2.0% in December. Alan Levenson, economist with T. Rowe Price, said the NAPM report "gives room for continued acceleration in manufacturing" and suggests that capacity utilization will "continue to rise." Levenson said the increase in prices paid "might have had more to do with oil than anything else." Still, he said the strength in manufacturing suggests that "pipeline price pressures will continue to accelerate." "When the index has been above 50% for five months in a row, as we have been, it's indicative of continued strength in manufacturing." Joseph Carson of Warburg Dillon Read said the NAPM report is "still suggestive of a manufacturing sector that's growing pretty briskly." He said the headline NAPM number was stronger than it looks because the fourth quarter index numbers were revised up, so "it's off a much higher base." The strength in manufacturing reflects "good and broad-based demand domestically and globally" and implies "increased pipeline pressures." Carson said it is unlikely there will an inventory-led slowdown following strong fourth quarter inventory building. For 1999 as a whole, he said inventory accumulation was "small relative to overall growth in the economy" and was "modest compared to what took place the prior two years." "The fact that we had a little more (inventory building) in the fourth quarter doesn't change the fact that inventories are fairly thin," Carson said. "If anything (companies) will have to add more." Carson said the Fed will "need to get to a federal funds rate of 6% pretty quickly," but like others he doubted the FOMC will vote to raise the rate more than 25 basis points when its meeting concludes Wednesday.