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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1408)	3/2/1999 8:28:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

US Manufacturing Revives By Svea Herbst-Bayliss NEW YORK (Reuters) - The U.S. economy, basking in its eighth year of expansion, looks ready to keep growing at a brisk pace in 1999 as manufacturers Monday confirmed a turnaround in the long sluggish sector. But strong economic news sent new shivers through financial markets, heightening fears first sparked by Federal Reserve Chairman Alan Greenspan that official interest rates may soon need to be raised. ''What this means in practical terms is that manufacturing, a sector which has been particularly soft in 1998, is coming back and adding to the already strong impetus that the economy has,'' said Anthony Karydakis, senior financial economist at First Chicago Capital Markets. Bond prices, which move in the opposite direction to yields, fell, taking stock prices along with them in early afternoon trading. The dollar, which benefits from a strong economy, rose against Europe's euro. After showing signs of improvement in January, the National Association of Purchasing Management's index on manufacturing activity surged to 52.4 in February from 49.5 in January and ended several months of consecutive declines. Norbert Ore, chairman of the group's business survey committee, reinforced the optimistic outlook by saying, ''This certainly signals a possible reversal of recent fortunes in the sector.'' A reading above 50 signals economic expansion and a reading below 50 indicates a contraction. At the same time the Commerce Department reported that Americans had earned more and kept spending it in January. Personal income rose by 0.6 percent in January after declining 0.1 percent in December and spending rose by 0.3 percent in January, cooling from December's 0.7 percent gain. Economists began to brace for more good economic news since orders for big-ticket items like cars and furniture surged 3.9 percent in January, marking the fastest rate in more than a year. Now many feel ready to revise growth outlooks to above 3 percent for the first quarter, in part because the rebound in manufacturing has added fuel to the economy's fire. ''Manufacturing indicates there won't be as much of a weakening as some people had expected,'' said Chase Securities economist Bill Sharp. ''But it also will not indicate that the economy will rush to 5 percent growth from 4 percent growth because of manufacturing,'' he added. In the bond market the benchmark 30-year Treasury bond fell to its session low of 93-25/32 after manufacturing data was released and yields remained at their highest levels since August. Rising bond yields hurt stock prices and the Dow Jones industrial average briefly traded nearly 10 points lower in early afternoon before turning higher. Last week the stock market had already given up some recent gains as analysts feared the market was overvalued. ''For the Federal Reserve, the manufacturing data is going to frustrate their expectation that the economy is slowing and it will complicate matters,'' Karydakis predicted. To traders, the news translated into higher interest rates whether they be raised by the central bank or indirectly by markets, and it refocused attention on this week's U.S. employment report to give new clues on how strong the economy is. While the economy may be performing just a touch too well, some economists still insist the central bank has more time to mull its next move after cutting rates three times late last year. ''In the longer term, I think the markets are over reacting as the economy can still operate above its potential without generating new inflationary pressures,'' Sharp concluded.