ISM: Manufacturing rebound continues at slower pace in Feb., jobs gauge rises to 5-year high

By Tali Arbel, AP
Monday, March 1, 2010

Manufacturing grows in Feb., jobs gauge rises

NEW YORK — The manufacturing sector expanded in February for the seventh straight month while a measure of employment jumped to the highest level in more than five years.

The pace of manufacturing growth was slower than in the previous month, and fell short of economists’ expectations, raising concerns about growth prospects after the positive effect of inventory restocking wanes.

Manufacturing “is leading the way but its growth is perhaps now peaking,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The Institute for Supply Management, an industry trade group of purchasing executives, said Monday its manufacturing index was 56.5 last month, down from 58.4 in January. It was also below the 58 level expected by economists polled by Thomson Reuters.

A reading above 50 indicates expansion.

As inventories stabilize, future growth in manufacturing is going to depend more on demand from companies and consumers.

That may be a tough bet as Americans’ incomes remain weak.

The Commerce Department said Monday that personal spending rose by 0.5 percent in January, slightly better than expected. But incomes edged up only 0.1 percent, which was lower than the 0.4 percent gain that economists had expected.

The income gain was the weakest showing in four months, partly because millions of Social Security recipients did not get their usual cost of living boost. The weak income growth could depress spending in the months ahead, acting as a further drag on the fragile economic recovery.

Consumer spending is closely watched because it accounts for 70 percent of total economic activity.

Americans’ spending has been under pressure as unemployment remains high.

ISM said its employment measure grew for the fourth time in five months, accelerating to 56.1 in February from 53.3 in January. February’s number is the highest since January 2005.

“With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment,” said Norbert Ore, chair of ISM’s manufacturing survey committee.

Even as employers’ willingness to hire rose, ISM said current business activity slowed in February.

Growth in new orders slowed to 59.5 from 65.9 in January, while production slowed to 58.4 from 66.2. New orders are a gauge of future activity.

Comments from the companies surveyed didn’t mention harsh winter weather is a factor in the slowing pace of new orders and production, Ore said.

A pickup in business investment in equipment and software, increases in exports and slower cutbacks of inventories has helped drive production gains.

Companies drawing down less on inventories helped pump up fourth-quarter economic output, which grew at a 5.9 percent pace.

Manufacturers said their levels of inventories shrank more slowly in February at 47.3 compared to 46.5 in January, said ISM, while they thought their customers’ inventories were still too low — meaning there’s still room for companies to rebuild their stocks of supplies.

Growth in exports also slowed slightly.

But strong productivity gains mean there’s been only slight hiring despite the ramp-up in production. The manufacturing sector added 11,000 jobs in January, the government said — the first jobs gain since January 2007.

February’s employment reading signaled that manufacturing would continue to add jobs, likely about 20,000 for the month, at most, Ashworth said.

The manufacturing sector has lost more than 2 million jobs since the recession began, however.

The government reports Friday on February employment.

Of the 18 industries ISM surveys, 11 reported growth, while five declined and two didn’t grow or shrink.

The construction sector has been another big employment loser, with 1.9 million jobs cut since the recession began. And construction spending in January boded ill for jobs news.

The Commerce Department said Monday that construction spending fell in January for a third straight month as a lag in commercial activity such as office buildings and hotels offset a housing rebound.

The 0.6 percent decline in construction spending last month was slightly smaller than the 0.7 percent drop that economists had expected.

Housing construction rose 1.3 percent, although that gain could be temporary given the weakness seen in sales of both new and existing homes in January. Spending on nonresidential projects fell by 2.1 percent.

With the third monthly decline, construction spending in January stood at a seasonally adjusted annual rate of $884.12 billion, down 11.5 percent from a year ago.

will not be displayed