Key manufacturing index starts '93 with solid gain

U.S. manufacturers virtually roared into 1993, according to a report yesterday that was the first solid data on the economy's momentum so far this year.

The closely watched purchasing managers' index, a measure of a half-dozen aspects of manufacturing, jumped from 55.4 percent in December to 58 percent in January, its highest level since the summer of 1988, the economy's last really good year.


"It's a strong report, one of the strongest in years," said Robert Bretz, chairman of the National Association of Purchasing Management survey and director of corporate purchasing at Pitney Bowes.

Instead of faltering, as some had feared, the recovery seems to have gotten on more solid footing. A reading over 44.5 percent indicates that manufacturing is expanding; a reading over 50 percent is a sign that the whole economy is gaining ground.


"It's powerful stuff," said Edward Yardeni, chief economist at C. J. Lawrence. "It should be enough to affect the administration's perception of the need for stimulus."

A separate report yesterday on the construction industry, however, showed that sector was still struggling at the end of 1992. The Commerce Department said outlays for new construction fell four-tenths of a percent in inflation-adjusted terms in December from November. Worse, October and November outlays were revised sharply lower.

Home building was the bright spot in the month and is likely to continue strong, given robust sales and mounting mortgage applications in January. But all other construction, from apartments to offices to stores, remained stalled.

The purchasing survey found that factory production in January grew at the fastest pace in five years. Even more encouraging, new factory orders zoomed to their highest level since 1983.

Order backlogs, which were shrinking for much of last year, gotfatter. And one of the favorite indicators of Federal Reserve chairman Alan Greenspan -- suppliers' delivery times -- suggested that factories were so busy that more customers were reporting delays in January than in December.

Rising orders and backlogs and longer waits for supplies all point to further production increases, economists say.

"This means that the economic expansion is not going to evaporate," said Bruce Steinberg, an economist at Merrill Lynch.

The strength in orders, moreover, was clearly because of stronger domestic demand. Export orders, still surprisingly solid, have merely been bobbing around in recent months.


Manufacturers are still not adding new workers, however, and the strong growth of production is almost entirely because of rapid gains in factory productivity.

Nonetheless, the purchasing managers' hiring measure, which was edging down in several of the last six months, did strengthen a bitin January, suggesting that the contraction in the factory work force may be easing.

"It's been my feeling for some time," Mr. Bretz said, "that order backlogs will have to grow for several months in a row before employment expands again. This is a good start."

Meanwhile, the purchasing managers' report suggested that the profit picture in manufacturing, already quite bright last year, is set to become even brighter in 1993 -- and for a widening circle of industrial companies.

The biggest gains in orders and production were in plastics, paper, chemicals, metals, heavy machinery and -- no surprise -- computers.

Though companies are still having a hard time raising prices, the survey showed that more companies were able to make their price increases stick or avoid price decreases in January than in December. Together with rising sales volume and improving efficiency, that suggests that profit margins are getting fatter.