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Manufacturing index near 20-year high
Nation's purchasing managers say business conditions much stronger than expected in November.
December 1, 2003: 11:10 AM EST

NEW YORK (CNN/Money) - U.S. manufacturing accelerated in November, the nation's purchasing managers said Monday, in a report that was the strongest in nearly 20 years and reinforced analysts' hopes that the long-sluggish economy is finally in a classic, self-sustaining expansion.

The Institute for Supply Management (ISM) said its index of manufacturing activity jumped to 62.8 from 57 in October. Economists, on average, expected an ISM index of 57, according to Briefing.com.

The index was the highest since 69.9 in December 1983 and has been above 50, a number that indicates expansion in the sector, for five straight months.

"It appears that the recovery is gaining momentum. Indications are that the manufacturing sector is ending 2003 on a very positive note, and all of the indexes support continued strength into 2004," said Norbert Ore, director of the ISM's survey committee. "While there are still companies lagging the recovery, they should be encouraged by the current indicators in the sector."

U.S. stock prices extended earlier gains after the report, while Treasury bond prices fell.

Some economists took the report as a sign that a burst of consumer spending in the third quarter, driven by temporary fixes such as tax rebate checks and cash from mortgage refinancing, has translated into accelerating production, which should force businesses to hire more workers.

"This is more corroboration that the economy, particularly the production side, is responding to the pick-up in demand we saw in the third quarter," said Joshua Feinman, chief economist at Deutsche Bank Asset Management.

Fed still on hold

Though consumer spending has slowed in the fourth quarter, some businesses have been forced to re-stock depleted inventories, and some have expanded their production capacity and hired new workers to meet accelerating demand.

That's the way things typically happen in an economic expansion, but it's taken a long time to get to that stage after the recession of 2001. Businesses, stung by a long bear market in stocks, corporate governance scandals, terror attacks and wars, delayed hiring, making the "recovery" of 2002-03 an especially joyless one for millions of unemployed Americans.

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Non-farm payrolls have grown for the past three months, however, raising hopes that the "jobless" recovery is finally over, which will translate into faster wage growth and support more consumer spending in a self-sustaining expansion.

The ISM's employment index rose to 51 from 47.7 in October, marking the first month above 50 in 37 months, and raising the chances that November saw the first gain in non-farm manufacturing payrolls since July 2000. The Labor Department is scheduled to release its figures for November employment on Friday.

The job growth is more of a hope than a guarantee at this point, however, and many economists think the Federal Reserve will wait until it's a sure thing before they start raising their key short-term interest rate, which is at the lowest level since the Kennedy administration.

"We still have yet to see much evidence that any of this is translating into an inflation threat," said David Resler, chief economist at Nomura Securities. "Until it does, I don't expect the Fed to move."

Still, there was little bad news in Monday's report. ISM's new orders index jumped to 73.7 in November, the highest since 74.8 in December 1983, up from 64.3 in October.

The production index rose to 68.3 from 62.6 in October, and the backlog of orders index rose to 59 from 53.5.

The inventories index rose to 50, compared with 44.5 in October, and the prices index rose to 64 from 58.5 in October.

In one of the few signs of weakness, the new export orders index slipped to 57.9 from 59.6 in October.  Top of page




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