1 August 2001, 19:46  U.S. July NAPM Manufacturing Index Falls to 43.6

By Siobhan Hughes
Washington, August 1 (Bloomberg) -- The slump in U.S. manufacturing extended to one year in July as orders fell, a survey of executives found. The National Association of Purchasing Management's factory index dropped to 43.6 last month from 44.7 in June. A reading below 50 signals contraction, and the index has stayed in the 40s for a year.
JDS Uniphase Corp. and Corning Inc. are receiving fewer orders because customers already spent more than they needed on fiber-optic equipment. The weakness in the telecommunications industry has outweighed progress at automakers and helped drag economic growth to the slowest in more than eight years.
``Manufacturing is far from out of the woods,'' said Richard Yamarone, chief economist at Argus Research Corp. in New York, before the report. ``The telecommunications area looks pretty dire and should continue to be so for the remainder of the year.''
Economists surveyed by Bloomberg News had expected a reading of 44.5 in the index. The new orders index, which accounts for 30 percent of the total index, fell to 46.3 in July from 48.6 in June. Still, other numbers gave signs that manufacturing could rebound.
The production index, a gauge of work being performed, rose to 46.4 in July, the highest since November, from 46.2. The inventories index fell to 35.8, the lowest since December 1982, from 40.8, a sign that factories are clearing out excess stockpiles at a faster pace. The index of orders for export rose to 48.2, the highest since 50.6 in March, from 45.5. The backlog of orders index rose to 42.5 from 42.
Price Index Falls
The employment index fell to 37.2 from 36.3. Inflation pressures eased: the index of prices paid for raw materials fell to 38.7 in July, the lowest since February 1999, from 42.3 in June.
The biggest problem for manufacturing has been a glut of telecommunications equipment created after business spending began a nine-month slump last year. That has hurt JDS Uniphase, the biggest maker of fiber-optic parts. Its three biggest customers, including Nortel Networks Corp., have vowed to deplete stockpiles before ordering more, analysts said.
Weakness in foreign markets is another obstacle. Minnesota Mining & Manufacturing Co., the maker of products from Post-It Notes to circuit boards, said a rapid sales decline late in the second quarter, particularly in Europe and Asia, crimped second- quarter profits. It said the strong dollar alone reduced earnings by about 6 percent. There are nonetheless some reasons for optimism. DuPont Co., the second-largest U.S. chemical maker, said last week it would expand production of Kevlar fiber at a Richmond, Virginia, plant by the end of next year. The Wilmington, Delaware, company said the expansion is necessary to meet growing demand for Kevlar, used to make bulletproof vests, gloves for auto and metal workers, fiber-optic cable and automotive hoses.
Signs of Improvement
General Motors, the largest automaker, had 61 days worth' of autos for sale at the end of June, within the 60 days to 70 days that automakers consider reasonable. ``We think the inventory correction is behind us,'' Chief Financial Officer John Devine said on a conference call in July.
Motorola Inc. said yesterday it received more orders for semiconductors than revenue in July, a sign the business may be reversing its decline this year.
The July book-to-bill ratio was greater than 1, said Fred Shlapak, president of Motorola's chip business, during a question- and-answer session at the company's annual meeting for analysts and investors in Rosemont, Illinois. That means Motorola booked more than $1 in orders for every $1 in revenue.

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