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Manufacturing a Potential Star for 2003

General Business News

January 2003

Manufacturing a Potential Star for 2003

As the first days of trading of 2003 got underway, traders and investors received some encouraging news on the beleaguered U.S. economy as a national report on manufacturing business conditions showed its first growth in four months. The report followed on the heels of The Wall Street Journal's 2003 economic-forecast survey which said economists expect companies to start using rising profits to rebuild inventories and make capital improvements in 2003, helping to fuel an economic recovery.

The Institute for Supply Management (ISM) indicated that its index of manufacturing business conditions rose to 54.7 from 49.3 in November — far above the modest increase to 50.3 analysts had expected. However, the group said the reasons for the magnitude of improvement were not clear. “These positive signs may help provide momentum for (the first quarter) as companies start to see some improvement,” said Norbert Ore, director of the ISM survey. The ISM new orders index surged to 63.3 from 49.9 in November — the largest one-month increase since 1980. A barometer of future production, the new orders index has recovered close to its peak of 65.3 in March. The employment index improved slightly, to 47.4 from 43.8. Investors on Wall Street cheered the news, sending the Dow Jones industrial average to a triple-digit gain.

The manufacturing report followed an upbeat survey of economists released recently by The Wall Street Journal. The survey said that after two years of cost cutting, economists expect companies to start using rising profits to rebuild inventories and make capital improvements in 2003, helping to fuel an economic recovery. If economic growth falls in line with the experts’ predictions, they expect the unemployment rate to fall to 5.7 percent by the end of 2003, from the current rate of about 6 percent. But the economists also warned about uncertainties in the near future — such as the possibility of an extended conflict in Iraq or new terrorist activity — that could hurt economic growth.

The manufacturing sector has been struggling since late 2000, when businesses abruptly stopped spending on factory improvements and new technology. The industry fell into an 18-month-long recession, the precursor to a broader U.S. recession that began in March 2001. Manufacturing bounced back somewhat earlier in 2002, growing for seven straight months, but fell back into contraction in September as businesses curtailed spending again after a brutal stock sell off.

Of the 20 industries in the manufacturing sector, 11 industries reported growth: Food; Leather; Instruments & Photographic Equipment; Printing & Publishing; Textiles; Furniture; Electronic Components & Equipment; Paper; Wood & Wood Products; Transportation & Equipment; and Chemicals. "There were no reports of commodities in short supply. Commodities reported up in price are: Caustic Soda, Copper, Corrugated Containers, Hydrochloric Acid, Natural Gas, Paper, and Polyethylene. Steel is the only commodity reported down in price," Ore stated.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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