Headline: Manufacturing Downturn Eases in August

SOURCE: Reuters via NY Times, 4 September 2001

URL: http://www.nytimes.com/reuters/business/business-economy-napm.html

A key U.S. manufacturing index posted its most significant gain in five years in August as new orders and factory production both rose, suggesting the ailing industrial sector may have endured the worst of a yearlong slump.

The National Association of Purchasing Management said on Tuesday its monthly manufacturing index rose to 47.9 in August from 43.6 in July, well above economists' forecasts of a 43.9 reading.

A reading under 50 signals manufacturing activity – more than one-sixth of the overall economy -- is contracting. The NAPM index has held below that level for 13 straight months, but August's reading was the best since November 2000, and the index is solidly above a decade low of 41.2 in January.

The NAPM new orders index, a critical gauge of demand for factory goods in the pipeline, rose to 53.1 in August from 46.3 in July -- suggesting new orders rose for the first time in more than a year.

The NAPM inventories index rose to 37.7 in August from 35.8 in July while the production index rose to 52.2 from 46.4 in July, suggesting that aggressive inventory reduction by firms this year has cleared the way for improved production.

-- Andre Weltman (aweltman@state.pa.us), September 04, 2001

Answers

On the back of this news, the Dow rose dramatically on Tuesday morning. But what is the Reuters article actually telling us?

First, the overall NAPM reading is still lousy.

Second, the "most significant increase in 5 years" is a reflection of how low the previous months have been, i.e. it’s a big percentage gain from lousy to slightly less lousy: the first sentence above is quite misleading.

Finally, I want to know if this reflects last-ditch optimism looking ofrward to Christmas sales (and a hoped-for -- but not guaranteed -- turnaround in the economy next year). The gain is NOT seasonally adjusted: funny how they always seasonally adjust economic statistics to minimize the bad, but here’s a stat that is not adjusted (to make it look better than it really is?).

It remains to be seen if this is merely a bump in a downward trend, versus an actual "bottom."]

-- Andre Weltman (aweltman@state.pa.us), September 04, 2001.