Manufacturing expands at faster pace in February

Wednesday, March 1st 2006, 10:45 am
By: News On 6

NEW YORK (AP) _ Manufacturing expanded at a faster rate in February than in January, a private research group said Wednesday, signaling the U.S. economy is on a firm footing.

Economists said warm weather may have aided growth in manufacturing and business executives surveyed by the group agonized over rising prices.

The Institute for Supply Management said its manufacturing index was 56.7 last month vs. 54.8 in January. Readings above 50 indicate the sector is expanding; those below 50 indicate manufacturing activity is shrinking. Economists had expected a reading of 56 for February.

``The rebound here was very encouraging and points to very, very solid growth through the first half of the year,'' said Gerald Zukowski, deputy chief economist at Nomura Securities International Inc. ``It was a very solid reading for the manufacturing and the goods producing side.''

The ISM's index of prices paid by manufacturers for raw goods was at 62.5 last month, compared with January's 65.0.

Industries reporting growth in February included apparel, textiles, transportation and equipment as well as electronic components and equipment.

The research group's new orders index, a gauge of future economic activity, rose to 61.9 from 58 in January, the 34th consecutive month of growth driven, in part, by tobacco, glass and apparel.

``Prices, driven by volatility in energy markets, continue to be a major source of concern for ISM's survey respondents,'' Norbert Ore, ISM chair said in a statement accompanying the report.

A survey respondent in the printing and publishing industry said that fuel surcharges were being converted to price increases.

The rising costs were not just related to fuel. Prices for aluminum products, brass castings, copper, petroleum products, plastics and stainless steel also increased, the ISM said.

Some of the growth in manufacturing may have been tied to warm weather, said Chris Low, economist at FTN Financial, a financial services firm.

The weather benefited companies like Philadelphia-based Haydon Bolts Inc., a manufacturer of special bolts and anchors used for steel beams and columns in the construction of industrial buildings, bridges and utility towers.

The 45-employee firm was able to produce more bolts in January because the mild weather allowed construction to go on, spurring demand for their products. ``When you can work outside, things get built,'' said Michael Friel, president of Haydon Bolts. ``Good weather means we sell more bolts.''

In contrast, firms like EdgeWater Powerboats LLC felt the bite of rising raw material costs. Peter Truslow, president of the Fla.-based boat builder, said stainless steel used for boat cleats, used to tie boats to docks, has gotten expensive as have different plastics like acrylic used for hatches and windshields.

The strength in February's manufacturing report has added fuel to expectations that the Federal Reserve will raise interest rates for the 15th consecutive time later this month.

``The green light is there for the Fed to continue to raising rates. No doubt about it,'' said Nomura's Zukowski. ``The Fed may go again in May unless the economy slows.''