Hints of a recovery in the US manufacturing sector and evidence of an increase in consumer spending put investors in a sunny mood on Wall Street yesterday, with the Dow Jones industrial rising 91.25 points to close at 10,593.65. While activity in the manufacturing sector remained at recession levels for the 11th straight month in June, the decline was at a slower pace than in May, according to the monthly report of the National Association of Purchasing Management.
It said the purchasing index rose to a better-than-expected 44.7 per cent last month, up from the 42.1 per cent in May and better than analysts had predicted. An index reading above 50 signifies growth in manufacturing, while a figure below 50 indicates contraction.
The report is closely watched as an indicator of how the manufacturing sector is currently performing. It is compiled from a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 industrial companies.
Another upbeat report showed construction spending rose 0.3 per cent to a record $881.6 billion annualised rate in June, following a revised 0.4 per cent gain in the prior month. Consumers too defied predictions by splashing out in May, despite a rash of layoffs and gloomy economic forecasts. The US Commerce Department reported that consumer spending rose by 0.5 per cent, the same as in April. Americans' personal incomes also rose in May for the second month in succession by 0.2 per cent.
The mood of optimism was bolstered by a biannual survey of 54 economists conducted by the Wall Street Journal. Their consensus forecast was that the US gross domestic product would advance 2.7 per cent in the fourth quarter and 3.1 per cent in the first quarter of next year. The US economy grew by only 1.2 per cent in the first quarter of 2001.
In light trading investors almost ignored another round of profit warnings, led by diversified manufacturer 3M which blamed weakness in the United States, European and Asian Pacific economies and the impact of a strong US dollar.
Early market activity yesterday was complicated by the hangover from an embarrassing computer glitch that paralysed the Nasdaq composite index on Friday, forcing the market to lengthen its trading time by an hour for the first time in its history. Closing prices on some stocks were reported incorrectly at close of business, though none was cancelled when the market opened yesterday.
The Nasdaq recalculated Friday closing stock prices for 46 of its stocks after incorrect prices resulted from an error by a WorldCom technician, said spokesman Mr Scott Peterson. Up to 39 of the price changes could be related to the worker's error. Microsoft closed at $73, rather than $72.60, Dell Computer at $26.15 instead of $26.63 and Applebee's International stock closed at $32, rather than $20.01, a difference of nearly 60 per cent.
