Business Watch

Manufacturing activity slowed sharply in February, according to the Business Outlook Index from the American Production and Inventory Control Society, Falls Church, Va.

The index fell to 49.1 from 53.9, the lowest since September 1993.

Also, for the first time, a majority of firms reported smaller gains or actual declines for all eight components of the Society's economic index.

The eight components of the APICS index include: shipments, employment, industrial production, inventory stock, durable goods new orders, production plans, unfilled orders and ratio of actual-to-desired inventory/sales.

"The cause of this slowdown is no mystery, but is clearly the effect of higher interest rates," according to Michael Evans, the economic consultant who developed the index for APICS.

"The greatest impact came from the interest rate hike on November 15, which for the first time boosted short-term rates to their equilibrium values," Evans explains.

INTEREST RATES MAY STABILIZE

In testimony before the Senate Banking Committee, Alan Greenspan, federal reserve chairman, said the federal government might cease raising interest rates further even if inflation increases somewhat. However, Greenspan did not rule out future increases if inflation continues increasing. Interest rate increases began a year ago. The rate of economic growth is expected to slow nationally over the next few months, he said.

PRODUCTION EXPECTATIONS DECREASE SLOWER

U.S. manufacturers reported a drop in a composite index describing conditions during a recent three month period, according to The Dun & Bradstreet Corp.'s latest survey of 1,000 manufacturing executives.

"Despite the softening we have seen during recent surveys, manufacturers tend to remain optimistic that conditions will improve," says Douglas Handler, manager of econometric analysis for Dun & Bradstreet.

"Economic growth in the U.S. seems to have slowed, but performance in the manufacturing sector appears likely to remain stable at least through late spring," he says.

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