Business within the nation’s manufacturing sector has expanded for the first time in 18 months, and there’s better news when it comes to consumer spending, personal income and construction spending.

The Institute of Supply Management, formerly know as the National Association of Purchasing Management, released figures Friday morning showing its index of business activity rose to 54.7 in February from 49.9 in January. The orders index rose to 62.8 from 55.3 and the production index increased to 61.2 from 52.0. An index above 50 indicates expansion, while a figure below 50 shows contraction.
Newport Communications Senior Economist Jim Haughey says the numbers are consistent with previous reports of a big jump in January manufacturing sales and a much slower pace of manufacturing layoffs.
“The interpretation has to be that the manufacturing recession is over, although some high tech and capital goods industries have yet to recover.”
The ISM index for new export orders barely pushed above 50 in February, meaning the domestic economy is recovering quicker than the export economy, according to Haughey. However, the latest news from Asia is encouraging. Several countries have raised their official GDP estimates for 2002, and even sluggish Japan reported a 0.2% decline in the unemployment rate to 5.3%. However, the news from Europe is at best neutral, Haughey says. Inventories continue to decline as in the U.S., suggesting a manufacturing recovery beginning soon. But Europe lacks the booming consumer confidence and spending of the U.S. Retail sales rose only 1.3% in Europe last year with a 0.6% decline in December.
Haughey says carriers specialized to foreign trade will see recovery delayed several months, compared to carriers hauling domestic products on domestic routes.
Meantime, a separate report released from the University of Michigan showed consumers’ feelings about the economy were down slightly. The university's consumer sentiment index slipped to 90.7 from 93.0 in January, revised down slightly from a first reported 90.9 reading.
Haughey says the figure is disturbing but not critical. “It is probably due to the usual spread of layoffs at the end of a downturn from manufacturing to distribution, service, finance and government. These are much larger sectors of the economy. Improvements in confidence will be restrained through the summer as some business sectors and government feel the delayed impact of the recession through sharply lower profits and tax collections.”
However, consumers still appear to be spending rather freely. A U.S. Commerce Department report released Friday indicated consumer spending, which accounts for about two-thirds of the nations’ economy, increased 0.4% in January, its best showing since October. Personal income also rose 0.4%, the biggest increase in six months.
Much of this increase Haughey attributes to new lower income tax withholding rates and the annual inflation-based boost in federal wages and income support programs.
“The biggest gain was for non-durable goods,” says Haughey, “the key source of freight for dry vans.”
Lastly, another Commerce Department report on the same day showed spending on construction increased at its fastest rate in a year. The value of new construction in the United States jumped 1.5% in January, the biggest increase since January 2001's 2.5%.
Haughey says much of the increase was due to unseasonably warm weather permitting more work in the North.
“The weather remained warm in February, so another gain is likely next month. While strong construction spending, especially for housing, moderated the 2001 economic slowdown, there is little left to contribute to the recovery in 2002. Expect construction to lag the rest of the economy this year with only marginal growth. The spring may be the weakest period, because warm weather permitted some work to be advanced to the winter.”