Factory activity rose in March

Unexpected gain a sign manufacturing may be rebounding

April 03, 2001|By BLOOMBERG NEWS

WASHINGTON - An index of U.S. manufacturing unexpectedly rose in March for the second straight month, suggesting that factory weakness is a diminishing threat to the economy's record-long expansion.

The National Association of Purchasing Management's factory index rose to 43.1 last month from 41.9 in February. In January, the index fell to 41.2, the lowest level in a decade, as manufacturers cut production to reduce overstocked inventories.

March's index was also the first since December to be above 42.7, the level that NAPM says historically corresponds to conditions of a recession.

"We're expecting the second quarter to be relatively good," Jacques Nasser, president of Ford Motor Co., said yesterday. "We are very confident at the moment. Our product momentum is good, our efficiency momentum is good, our balance sheet is strong."

Ford said last month that it would build 1.25 million vehicles in the second quarter, up from 1.06 million in the first three months of the year.

On Wall Street, worries about U.S.-China relations erased a strong blue-chip advance earlier in the session. The Dow Jones industrial average finished down 100.85 to 9,777.93, and the Nasdaq composite index lost 57.29 points to 1,782.97.

U.S. Treasury securities also fell after the report. The 10-year note dropped 0.4375, pushing its yield up 6 basis points to 4.97 percent.

That dimmed investors' hopes that Federal Reserve policy-makers would reduce interest rates before they next meet in May. Central bankers already have cut the overnight bank lending rate three times this year to keep alive the expansion, which turned 10 years old last month.

"This would argue against a sense of emergency at the Fed," said David Orr, chief economist at First Union Corp. in Charlotte, N.C.. Economists surveyed by Bloomberg News had expected a reading of 41.5. for the NAPM index.

Another area of the economy, housing, continues to show it isn't suffering from a slowdown. Construction spending rose for the fourth consecutive month in February, led by work on single-family houses, the Commerce Department said.

The 0.6 percent increase in the value of new construction to $834.2 billion at an annual rate followed a 2.2 percent gain in January.

The economy slowed to a 1 percent annual growth rate during the last three months of 2000, the weakest performance in 5 1/2 years, after expanding 6.1 percent in the 12 months from July 1999 to June 2000. Manufacturing suffered the worst from the slowdown as demand dried up, leaving factories and retailers with excess inventory.

Since August, the NAPM's index has been below 50, the level that suggests contraction in manufacturing. That led companies to cut production and fire workers. In the first two months of the year, factories lost more jobs than they did for all of 2000.

Yesterday's numbers offer a sign that manufacturing may start to rebound. The indexes measuring production, orders and employment all rose. The group's factory inventory index fell for the first time since December.

"We have seen the worst," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis. "Much of the problem in manufacturing has been in a pile of unwanted inventories, and that is gradually being run down."

Last week, Delphi Automotive Systems Corp., the world's largest auto-parts maker, said it would eliminate 11,500 jobs by offering early retirement packages.

And makers of telecommunications equipment are experiencing a slowdown.

Hewlett-Packard Co. Chief Executive Carly Fiorina said in mid-March that a "quick" recovery in the U.S. economy is unlikely, and that bodes ill for the second-biggest computer maker's sales this year.

Cisco Systems Inc. Chief Executive John Chambers has said at least three times this year that sales at the No. 1 Internet-equipment maker were slowing.

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