Manufacturing Activity Shrinks

MBA (3/4/2008 ) Velz, Orawin
The nation’s manufacturing industry contracted in February following a temporary improvement in January, according to the Institute for Supply Management (ISM) manufacturing survey.
The manufacturing index fell to 48.3 in February from 50.7 in January. A reading of 50 or above indicates an expansion in the manufacturing sector. The index is at the lowest reading since April 2003 and the second reading below 50 in the past three months. The report confirmed results from regional manufacturing surveys for the month, showing declining manufacturing activity.

The ISM manufacturing index is based on a survey of purchasing executives at roughly 300 industrial companies. It includes nine different sub-indices: new orders, production, employment, supplier deliveries, inventories, prices, new export orders, imports and backlog of orders.

New orders—a forward-looking component of the index—edged down to 49.1. This is the third consecutive monthly decline and the third straight reading below 50. Production—another forward-looking component—fell to 50.7 from 55.2. The employment index fell 1.1 points to 46, its lowest level since June 2003 and the fourth consecutive reading below 50.

A separate report showed that construction spending fell significantly. Total construction spending dropped 1.7 percent in January, the largest decline since December 1996. Private construction spending declined 2.2 percent, as a result of declines in both private residential and nonresidential construction spending. Private residential construction spending decreased 3.0 percent in January and 19.7 percent from a year ago. Private nonresidential construction spending decreased 1.2 percent, the first drop since September 1996. Over the past year, private nonresidential construction spending was 17.3 percent higher than a year ago. Public construction fell 0.2 percent, the second consecutive monthly decline.

Treasury yields increased slightly. The yield on 10-year Treasuries rose four basis points and hovered around 3.55 percent by mid-Tuesday afternoon.