Fri, Mar 02, 2001 EST
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Manufacturing Slows in February
By Adam Geller   Associated Press
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NEW YORK — The nation's manufacturing activity showed signs of hitting bottom in February although it extended its decline for a seventh month, a key industry group said Thursday.

The widely followed report from the National Association of Purchasing Management supported the contention Wednesday by Federal Reserve Chairman Alan Greenspan that the downturn in the economy appeared to be slowing in the early months of 2001.

The NAPM, an organization of corporate purchasing executives, said its index of business activity rose to 41.9 in February from 41.2 in January.

An index above 50 signifies growth in manufacturing, while a figure below 50 means contraction. A level below 42.7 also generally indicates a contraction in the overall economy.

The upturn in manufacturing followed a January figure that showed manufacturing at its lowest level since early 1991.

The NAPM said that while the February reading means the overall economy contracted for the second consecutive month, the uptick in the index and its components might signal that the decline has reached its low point.

However, "we must caution that it takes more than one month's data to make that determination," said Norbert J. Ore, who oversees the monthly survey for the NAPM. He noted that an important component of the index, new orders, showed a slower rate of decline, a more positive sign for manufacturers' business.

The new figure was roughly in line with analysts' expectations and marked the seventh straight month of contraction in the manufacturing sector. Of the 20 industries in the manufacturing sector, only food and tobacco reported an improvement in business in February.

The NAPM reading was one of three reports Thursday to offer some encouraging economic data. The Commerce Department said Americans' incomes rose sharply in January and spending shot up even more quickly as mild weather and deep discounts lured people into stores and malls. In addition, spending on construction projects in January posted the biggest increase in 10 months. With mild weather, spending rose for new homes, office buildings and highways.

Stocks extended their decline in early trading Thursday, although they blipped up after the release of the NAPM report. The Dow Jones industrial average was down 131.82 to 10,363.46, while the Nasdaq composite index was down 45.07 at 2,106.76, a level not seen since December 1998.

The NAPM report should not be interpreted as a sign the economy is in recovery, but it does show business is headed in a positive direction, said economist Sung Won Sohn of Wells Fargo & Co. in Minneapolis.

"I would view this as a ray of hope," for manufacturing and the overall economy, Sohn said. "We desperately need some encouraging reports and so (the fact that) it is still hurting but it's not hurting as much as it did, is probably positive news."

Sohn said it was particularly encouraging to see that nearly all the components covered by the index improved in February. The report's one negative sign was that it still shows manufacturers are working to reduce inventories, and because of that, production remains at a low level, he said.

"I think it will take another quarter or so for manufacturing to eliminate unwanted inventories," Sohn said.

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