Economic Outlook Cloudy, NAM Claims

25 February 2002 00:00  [Source: ICB Americas]

A Federal Reserve report showing that US industrial output slipped again in January "underscores the fragility of the economic recovery," says the National Association of Manufacturers (NAM).

The Fed reported that output from the nation's factories, mines and utilities dropped 0.1 percent in January, its sixth straight fall after a revised 0.3 percent slide in December. Capacity utilization dropped to 74.2 percent, its lowest level since April 1983.

However, manufacturing output, which makes up the bulk of industrial production, was unchanged in January--the first month since July that factory output had not fallen.

"While today's news can be added to the growing list of indicators that point to a possibility of a recovery in manufacturing early in 2002, the outlook remains clouded and uncertain," says NAM president Jerry Jasinowski.

Even though output by durable goods producers rose 0.1 percent, Mr. Jasinowski notes that only about half of the durable manufacturing sectors showed improvement last month. At the same time, the output of nondurables declined by 0.2 percent for the third consecutive month.

Recovery in manufacturing will likely be very gradual, according to the industry official. "Exporters continue to be hampered by an overvalued dollar at a 16-year high and sluggish growth abroad," says Mr. Jasinowski.

In addition, without tax incentives to encourage business investment, he says the rebound in capital spending will be very modest during the first half of the year.

"Together, these factors will minimize the early stages of the manufacturing recovery that appears to be developing in 2002," Mr. Jasinowski remarks.

While the Fed's report showed manufacturing held its own in January, other industrial sectors were weaker. Mining was down by 0.5 percent and utilities fell 0.7 percent, hurt by milder than usual temperatures.

The report adds to recent signs that the manufacturing sector, which has borne the brunt of job losses in the recession may be healing. A widely watched index of manufacturing activity released by the Institute for Supply Management two weeks ago registered 49.9 for January, just below the break-even mark.

NAM's 14,000 member companies include the major producers of chemicals, plastics and pharmaceuticals.

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