NEW YORK (CNN/Money) - Manufacturing activity in the United States expanded for the third straight month in January, though the pace of growth was slightly slower than in December, the nation's purchasing managers said Monday, providing another sign of hope for a long-suffering sector.
The Institute for Supply Management said its index of manufacturing activity fell to 53.9 from an upwardly revised 55.2 in December. Any reading above 50 percent indicates expansion in the sector. Economists, on average, expected an index reading of 54, according to Briefing.com.
The ISM's "new orders" index fell to 59.7 from a revised 62.9, while its production index dipped to 56.3 from a revised 56.5 in December.
The ISM employment index fell to 47.6 from a revised 48.2, indicating the pace of layoffs in the manufacturing sector picked up a bit in January.
"It is encouraging that new orders continued strong in January," said Norbert Ore, chairman of the ISM's survey committee. "Production also fared well, providing cause for optimism for an improving economy in the first quarter."
The report had little impact on U.S. stock prices, which were higher in early trade. Treasury bond prices fell.
Some Wall Street economists had expected the ISM report to be even higher, since it followed strong regional manufacturing data from Chicago, New York, New Jersey, Pennsylvania and Delaware.
Though the manufacturing sector makes up a relatively small part of the total U.S. economy, some economists see its health as indicative of the broader economy's vitality.
The sector fell into recession well in advance of the broader economic recession that began in March 2001, and a recent study by Dallas Federal Reserve Board economist Evan Koenig suggested changes in the ISM index have been good predictors of changes in Fed monetary policy in recent years.
In advance of Monday's report, some economists said they expected an ISM index of better than 55, which they said would indicate growth in gross domestic product (GDP), of more than 4 percent in the first quarter -- far better than the anemic 0.7 percent growth in the fourth quarter of 2002.
Though the ISM reading missed the 55 mark, it still indicates strong GDP growth, if it can be sustained throughout the quarter.
"A strong U.S. corporate recovery is brewing right now -- this survey implies 4 percent gross domestic product growth," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd.
Worries about the possibility of a U.S.-led war in Iraq continued to weigh on corporate sentiment, the ISM said. Most economists believe such fears have discouraged businesses from making new spending plans and from hiring workers, helping the unemployment rate hover around 6 percent since December 2001.
But other economists worry that an overhang of production capacity, the hangover of a spending orgy in the late 1990s, could continue to discourage spending and hiring even if the Iraq situation is resolved.
One problem manufacturers did not have in January, however, was an overhang of inventories. The ISM's inventory index dropped to 45.4 from 46.2 in December, while the "customers' inventories" index fell to 42.5 from 43 in December.
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