NEW YORK: US manufacturing stepped out of the doldrums in December, expanding by a lot more than expected, but the improvement was at odds with other soft economic news recently, and did not change expectations for a gradual recovery in 2003.
AThe group conducting the influential factory survey, the Institute for Supply Management (ISM), was at a loss to describe why the December report was so strong, noting that elements required to produce strong growth did not seem to be in place.
That said, the ISM index came in at 54.7 – well above the 50.3 analysts had expected and above November's 49.2 – and showed expansion for the first time in four months. In the survey, 50 marks the threshold between growth and contraction.
Other data were less upbeat. In keeping with the sluggish labour market, unemployment claims rose in the latest week, suggesting any improvement is still months away.
Economists, like ISM officials, are viewing the factory report with a healthy dose of scepticism.
“The striking thing is that strength in the (manufacturing) survey is against the background of an overall pretty disappointing economic environment,” said Anthony Karydakis, senior financial economist at Banc One in Chicago. “So is it really that manufacturing is leading the way in this recovery while we saw consumer spending and just about everything else falter in December? I’m not so sure.”
Though the report contributed in part to dramatic gains in stock prices and a sharp sell-off in US Treasuries, Thursday was the first trading day of the year and dealers attributed the moves mainly to New Year portfolio shifts.
Economists said it was too soon to be sure the US economy had emerged from the weak patch it had been mired in since late summer.
Consumer confidence remains relatively weak, and concerns surrounding a probable US war with Iraq hardly point to a robust recovery.
Confidence has fallen for six months out of seven, holiday retail sales were weak, and orders for durable goods have yet to improve.
Figures on Thursday showed unemployment insurance claims rose by a surprisingly sharp 13,000 in the week ended Dec 28 to 403,000, the latest figures to point to a stagnant job market.
The jobless rate for December, due out next week, is expected to remain at an eight-year high of 6%.
In a concession to the struggling economy, President George W. Bush will unveil on Tuesday a stimulus package, which is expected to total up to US$300bil in tax breaks for businesses and individuals. – Reuters
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