New York, NY, Mar. 4--U.S. manufacturing activity grew for a fourth straight month in February, but the pace of expansion slowed notably, according to the Institute for Supply Management. The group’s index of manufacturing activity fell to 50.5, slipping markedly from a January reading of 53.9.
Analysts had been expecting a reading of 52.0 for February. A level above 50 indicates the manufacturing sector is expanding; below 50 means it's contracting.
“Manufacturing and the economy are expanding, but they’re struggling,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. “I'm not exactly overjoyed and dancing over this report. ... There are plenty of worrisome signs in there.”
The February reading reflects manufacturers' continued unease about the risk of war with Iraq, stock market setbacks, rising prices and a general climate of shaky business confidence, analysts said.
“Supply managers are certainly being challenged by current business conditions,” said Norbert J. Ore, who oversees the monthly survey. “While volumes seem to fluctuate, prices are rising on many commodities pushed by higher energy prices.”
He noted that while production is still strong, the pace of new orders to manufacturers has slowed and factories are reducing the number of people they employ.
The purchasing and supply executives surveyed by ISM expressed mixed opinions about the economy. Although some said they see signs of an improvement in business, many voiced concerns that higher energy prices are cutting into thin profits. The possibility of war with Iraq is also putting a lid on growth, they said.
The ISM's index is closely followed by economists and market watchers because it gives an early reading on the health of the manufacturing sector. It's based on a survey of executives who buy the raw materials for manufacturing at more than 350 companies.
ISM's new orders index fell 7.4% to 52.3% in February, down from 59.7% in January. The group's production index declined 0.9% to 55.4%. Its measure of employment dropped 4.8% to 42.8%.
Of the 20 industries in the manufacturing sector, ten reported growth, including wood products, tobacco, apparel and electronic components.
