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U.S. Manufacturing Index Rises But Still Indicates Contraction In February

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While the Institute for Supply Management released a report on Tuesday showing a much bigger than expected increase by its index of manufacturing activity in the month of February, the index still pointed to the fifth straight month of contraction.

The ISM said its purchasing managers index rose to 49.5 in February from 48.2 in January, but a reading below 50 continues to indicate a contraction in manufacturing activity. Economists had expected the index to inch up to 48.5.

Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "Comments from the panel indicate a more positive view of demand than in January, as 12 of our 18 industries report an increase in new orders."

The bigger than expected increase by the headline index was partly due to an acceleration in production growth, as the production index climbed to 52.8 in February from 50.2 in January.

The employment index also rose to 48.5 in February from 45.9 in January, although the reading below 50 still points to a contraction in employment in the manufacturing sector.

The report also said that the new orders index came in at 51.5 in February, matching the reading reported for the previous month.

On the inflation front, the prices index jumped to 38.5 in February from 33.5 in January but still indicates lower raw materials prices for the sixteenth consecutive month.

The ISM is scheduled to release a separate report on Thursday on activity in the service sector in the month of February.

The non-manufacturing index is expected to dip to 53.1 in February from 53.5 in January, although a reading above 50 would still indicate service sector growth.

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