Factory sector still hurting, but pace of decline slows
May 1st 2009 11:30AM
Updated Dec 4th 2009 12:11PM
Call it one positive and one negative on the latest data points for the U.S. economy.
The Institute for Supply Management's manufacturing index revealed a slowing contraction in the nation's factory sector in April, while the U.S. Commerce Department announced that factory orders declined 0.9 percent in March.
The ISM manufacturing index rose to 40.1 percent in April from 36.3 in March -- a level that still indicates a contraction -- but the reading is the index's highest since September, and it was well above the 38.3 Bloomberg News survey of economists estimate.
Readings above 50 indicate an expansion; under 50, a contraction. The ISM index has been below 50 for 15 consecutive months. Also, the ISM production index rose to 40.4 percent from 36.4 percent in March. The employment index increased to 34.4 percent from 28.1 percent in March.
Factory orders retreat
Meanwhile, factory orders resumed a retreat after breaking the skid a month earlier. Factory orders declined 0.9 percent in March, the Commerce Department said Friday, following a revised 0.7 percent rise in February. Factory orders have now fallen in eight of the last nine months.
Economists surveyed by Bloomberg News had expected March factory orders to decline 0.5 percent. Factory orders fell 3.5 percent in January.
The exclusion of the often-volatile transportation component (which includes airplanes and cars) had no impact on the March tally, with factory orders still decreasing 0.9 percent.
Another "green shoot" advocate?
Scott Anderson, senior economist for Wells Fargo (WFC) in Minneapolis, says he sees one of those "green shoots" Fed Chair Ben Bernanke has been talking about.
"Companies might be seeing stronger order flows than they saw earlier in the year," Anderson told Bloomberg News Friday. "It's still pointing to contraction, but we're seeing some moderation."
Economists follow the factory orders statistic because it provides one of the most comprehensive surveys of advance orders for durable goods -- how busy factories are likely to be in the period ahead. Factory orders also are a major, value-added component of the U.S. economy.
In March, durable goods orders decreased 1.3 percent. Meanwhile, shipments declined 1.5 percent, and inventories dropped 1.3 percent. The nation's inventory-to-shipment ratio rose slightly, to 1.46 from 1.45 in February.
Economic Analysis: The ISM manufacturing index for April was a pleasant surprise, the Commerce Department March factory order data, a bit of a downer. On balance, though, we can detect a slowing of the pace of contraction in the nation's manufacturing sector -- which historically has marked the beginning of a turnaround. Still, it's important for investors to remember that we'll need three, four or five months of solid factory orders (as well as improving statistics in other categories) before we can say a bottom to the recession is in place. In other words, macroeconomically speaking, there's still much work ahead.