Factory activity grew again in Jan.

Expansion pace slowed, signaling moderate growth

February 02, 2005|By John Schmeltzer | John Schmeltzer,CHICAGO TRIBUNE

Activity at the nation's factories increased for a 20th consecutive month in January, but the pace of expansion eased, reflecting sustained, moderate growth in the overall economy.

The Institute for Supply Management said yesterday that its index measuring manufacturing activity declined to 56.4 in January, just below the reading of 57 expected by analysts. That was a drop from a revised reading of 57.3 in December, but any measure above 50 indicates expansion.

"The report is still consistent with growth, but it is close to 4 percent, not the 6 percent that was being indicated last year," said Diane Swonk, chief economist for Mesirow Financial.

Swonk said the report appeared to make it virtually certain that the Open Market Committee of the Federal Reserve Board will boost interest rates a quarter point today at the conclusion of a two-day meeting. It would be the sixth increase in rates since June.

Norbert J. Ore, chairman of the institute's survey committee, said the January index reflects continued strength in manufacturing, with production and employment picking up.

"January sets the tone for a strong first quarter. Even though the [index] is slightly lower, the month-over-month growth is still quite strong and will provide significant momentum for the remainder of the first quarter," Ore said. "Demand for exports continues to be quite strong, with a number of industries reporting significant growth."

Despite the apparent demand for increased exports, said Jan Hatzius, senior economist at Goldman Sachs in New York, imports are outpacing exports.

"At the moment, the trade deficit is still expanding. But there is a decent chance that could turn around by the end of the year," Hatzius said.

Tempe, Ariz.-based ISM said the index measuring production increased to 57.8 last month from 56.7. A separate index gauging employment jumped to 58.1 from 53.3 in December. It was the 21st month that the production index has increased, while the 15th consecutive month the employment index had jumped.

However, the new-order index declined to 56.5 from 62.6 the previous month. In addition, ISM's index of prices paid by manufacturers declined to 69 from 72 in December.

"Manufacturers are saying their order books are very good, but they can't produce as much as would like because they can't get enough steel or other raw material," said economist Carl Tannenbaum of LaSalle Bank in Chicago.

Overall, of the 20 manufacturing sectors surveyed by the group, 12 reported growth. They include primary metals, furniture, rubber and plastic products, transportation and equipment, industrial and commercial equipment and computers, instruments and photographic equipment, miscellaneous, textiles, chemicals, electronic components and equipment, apparel and food.

The Chicago Tribune is a Tribune Publishing newspaper. The Associated Press contributed to this article.

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