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ISM Report Sends Mixed Messages, Comments from Dr. Joe Webb

Press release from the issuing company

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in February for the ninth consecutive month, while the overall economy grew for the 28th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "This month, many respondents are particularly encouraged by the increased breadth of the recovery in manufacturing. All 20 manufacturing industries reported growth. New Orders and Production both decelerated this month, but they are still at very positive levels." ISM's Backlog of Orders Index indicates that order backlogs increased in February, and the Employment Index grew for the fourth consecutive month. ISM's Prices Index indicates that manufacturers once again experienced higher prices in their purchases, and at the highest rate since February 1995. The New Export Orders and Import Indexes continue to grow, with Imports accelerating during the month. Comments from purchasing and supply managers have become increasingly optimistic as more and more industries indicate improvement. The general tone of the panel has improved significantly in these first two months of 2004. Their major concerns are steel availability and energy prices. ISM's PMI registered 61.4 percent in February, a decrease of 2.2 percentage points when compared to 63.6 percent in January. ISM's New Orders Index declined 4.7 percentage points from 71.1 percent in January to 66.4 percent in February. ISM's Production Index declined 7.2 percentage points from 71.1 percent in January to 63.9 percent in February. The ISM Employment Index is at 56.3 percent for February, an increase of 3.4 percentage points when compared to the 52.9 percent reported in January. ISM's Supplier Deliveries Index registered 62.1 percent, 1.7 percentage points higher than January's 60.4 percent. ISM's Inventories Index registered 49.4 percent in February, up from the 48.9 percent reported in January. ISM's Customers' Inventories Index for February is at 38.5 percent, a decrease of 1.5 percentage points compared to the January reading of 40 percent. ISM's Prices Index in February is 81.5 percent, 6 percentage points higher than the 75.5 percent reported in January. ISM's Backlog of Orders Index increased 1.5 percentage points, registering 62 percent in February compared to 60.5 percent in January. ISM's New Export Orders Index registered 54.9 percent, a decrease of 2.6 percentage points from January's 57.5 percent. ISM's Imports Index increased 0.7 percentage point to 60.2 percent in February, up from 59.5 percent in January. "Taking into account the fact that all 20 industries reported growth in February, combined with a manufacturing economy that has been growing for the past nine months, it appears that the manufacturing sector has sustainable momentum at this point," said Ore. Comments from Dr. Joe Webb: "It's hard to interpret the ISM report, as it seems  to indicate that we're moving sideways  economically . We're still growing, but not at as high a rate  as previous reports reflected. That's to be expected, of course;  but we're still  moving in the right direction. Employment  numbers are quite good in this report, which is the bright spot that most people are focusing on.   "Separately, the personal income report  received negative  reviews.  Looking below the surface,  though, the most important element of this data,  in my opinion ,  is proprietor's income, which  reflects the health of small business. That was up a  stunning   $15 billion, or +1.7%, which implies a 5% growth rate for the year. I'm still lookingfor GDP to end up in the 4% to 4.5% range, but am leaning more toward the 4% side." Premium Access Members at WhatTheyThink.com can view more analysis in Dr. Joe Webb’s weekly column on Friday, appropriately called "Fridays with Dr. Joe".