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Manufacturing Surges Ahead In December
Economists Predict Rise In Hiring at Factories
By Jonathan Krim
Washington Post Staff Writer
Saturday, January 3, 2004; Page E01

The country's manufacturing sector grew at a scorching pace for a second straight month, breaking decades-old records and exceeding expectations of economists who have been cautious about the relative strength of the recent economic turnaround.

Numbers released yesterday by the Institute for Supply Management showed new factory orders, production and employment all rising significantly last month. With the pace of new orders reaching a level not seen since July 1950, some economists are hopeful that manufacturers will begin a serious run at replacing the 2.6 million factory jobs lost over the past three years.

Others say that with the long-depressed manufacturing sector finally joining the recovery, 2004 could rival rapid growth years in 1984 and 1997 that followed economic downturns.

"We did [the recovery in] 2003 without the manufacturing sector," said James Paulsen, chief investment strategist at Wells Capital Management. "Now we're starting to dump fuel on a fire that was already burning pretty good. It's huge. . . . It starts to look like it could be one of those huge blowoff years."

The overall manufacturing index has grown for six straight months.

Still, not all the recent economic news has been positive. Last month's orders for durable goods were down. Housing sales and consumer confidence figures fell below expectations, leading to concerns that the recent economic strength might be temporary and more the result of short-term stimulus measures such as tax cuts.

But Paulsen and others think those fears are rapidly evaporating in the face of numbers such as those released yesterday.

Overall, the supply institute's purchasing managers' index hit 66.2 percent, the highest since late 1983. A number above 50 percent indicates that the manufacturing economy is growing, while less than 50 percent shows contraction. The figure rose by 3.4 percentage points over November, confounding a consensus estimate that it would fall back to 61.

Matthew Martin, senior economist at Economy.com, said the most important sign of continuing recovery is the level of new orders, which for the third consecutive month outpaced factory production.

That means that if factories want to keep pace, they will likely have to start hiring anew, or at the very least increase the hours that employees work. Moreover, the growing number of back orders and the still-low inventories mean that even if the pace of new orders slackens, manufacturers will need to operate full bore, Martin said.