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News > Economy
U.S. index improves
September 4, 2001: 11:43 a.m. ET

Manufacturing contracts, but comes in ahead of July numbers, analysts' views
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NEW YORK (CNNfn) - U.S. manufacturing picked up a bit of steam in August, the nation's purchasing managers said Tuesday, coming in stronger than most private economists had expected, in what may be an early sign of a revival in the world's largest economy.

The National Association of Purchasing Management (NAPM) said its Purchasing Managers Index, which measures manufacturing activity, rose to 47.9 from 43.6 in July. Wall Street economists had expected a reading of 44, according to Briefing.com.

But while it was stronger than expected, the reading still pointed to a shrinking manufacturing sector; a reading above 50 indicates activity is expanding while anything below that signals contraction. NAPM's members buy raw materials for about 300 of the nation's largest companies.

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"The manufacturing sector continued to decline in August as has been the trend since August 2000," said Norbert Ore, chairman of the NAPM's business survey committee. "However, the rate of decline decelerated significantly during the month."

Production and new orders improved after lengthy declines, he added, "providing encouragement that a number of industries are starting to recover."

Other economists reiterated Ore's view of a stabilization in the manufacturing sector, but said one month of improved results is not enough to signal a turnaround.

"A lot of people are surprised. I am too," said Carol Stone, deputy chief economist with Nomura Securities. "I hesitate to read too much into one month's number, but certainly it does indicate that the worst may have passed for factory activity."

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In addition to the PMI, the NAPM's production index climbed to 52.2 in August from 46.4 in July and the group's new orders index rose to 53.1 from 46.3 in July.

"I don't think it does anything to fact that we look for one more rate cut in October. There are too many other pieces of information that we still need to see," continued Stone. "The price situation in some ways is a good thing, but the fact there are such widespread price declines is not good in the long run that's deflation, and can weigh in favor of even more easing."

The manufacturing sector has been hit especially hard by the economic slowdown, with companies cutting thousands of jobs. And while August's NAPM reading showed an uptick from July, the index has come in below 50 for 13 straight months.

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Blue-chip stocks rallied after the report, as investors bet it might mean that the sluggish U.S. economy is starting to turn around. The Federal Reserve has cut rates seven times so far this year in a bid to boost growth and prevent a recession.

Separately, U.S. construction spending fell slightly in July, after recording its steepest drop in nearly a year in June, the Commerce Department said Tuesday.

Spending on building proceeded at a seasonally adjusted annual rate of $859.4 billion in July, down 0.1 percent from its June pace of $860.0 billion. graphic

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NAPM index shrinks in July - Aug. 1, 2001

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