Today marks the end of my sixth month writing these articles describing and commenting on day-to-day happenings in the economy. It seems like only yesterday that I was wandering the byways of Fooldom and happened upon Templar's Help Wanted sign posted in the front window of the Evening News storefront. I've learned a lot by researching and writing these articles and I hope I've been able to pass some useful information along to you. Thanks for stopping by.

This morning the Survey Research Center at the University of Michigan updated the calculation on the February value for its Consumer Sentiment Index. The preliminary February figure of 86.6 was revised upward to 88.5. This compares with readings of 89.3 and 91.0 for January and December. The Index hit an intermediate high level of 94.4 last July.

A couple days ago I discussed the month-to-month and survey-to-survey variability of the findings derived from consumer sentiment polls. A case in point is the most-recent data from the U of M and Conference Board surveys. During February, the U of M sentiment index declined slightly from 89.3 to 88.5, while the Conference Board index rose from 88.4 to 97.0. In an effort to average out these short-term discrepancies, I add the two indexes together each month and divide by two to obtain a composite index. For February, this composite sentiment index stood at 92.8, up from a January reading of 88.9. The composite index made a high of 97.9 in July of last year.

There's another indicator derived from the monthly U of M surveys that is not as widely publicized as the Sentiment Index, but is perhaps even more important. I'm talking about the Consumer Expectations Index. This Index is based on consumers' opinions on the condition of their family finances a year from now, the state of the economy during the coming year, and the status of the economy five years from now. The Expectations Index has been judged by the Commerce Department to be one of the more reliable indicators of future economic conditions. It is one of eleven indicators that make up the Department's Composite Index of Leading Economic Indicators (LEI). During February, this index declined from 78.7 to 77.8. This was on the heels of another decline from 83.7 in December. The Expectations Index also peaked out last July, at a reading of 87.4.

The National Association of Purchasing Management reported today that during February its index of manufacturing activity (PMI) edged up from 44.2 to 45.2. While this month's number is slightly improved from last month's, the PMI is still well below the 50 level that marks the transition from expansion to contraction in the manufacturing sector of the economy. The PMI hit a peak of 59.5 in October 1994 and has been trending downward ever since. The index has been below 50 for the past seven months. The last time the index exhibited behavior like this the economy was heading into a recession.

Some analysts speculated that the poor PMI showing in January was mainly due to unusual weather conditions. But, February's data seem to indicate that January's results were primarily caused by the general slowing in the economy.

The PMI is a composite of several sub-indexes that measure the status of various elements of the manufacturing process. We can get a more-detailed idea of conditions in the manufacturing sector and the economy by examining how some of these sub-indexes fared.

In February the NAPM Price Index dropped 1.1 points to 38.4. This was the 13th straight month that this index declined. It was the first time since the middle of the last recession that the index had two consecutive monthly readings below 40. Only 9 percent of the respondents reported paying higher prices in February. So, manufacturers are feeling little price pressure from their suppliers - a good indication that inflation is under control.

Employment at NAPM member firms has declined for thirteen months straight; but, the NAPM Employment Index seems to be stabilizing at a sub-par level around 45. Eighteen months ago this index averaged around 50 - the highest level since before the 1990-91 recession. During that recession the index dipped as low as 33.

The NAPM Inventories Index fell from 47.7 in January to 43.9 in February. This indicates that producers were adjusting their output to more closely conform with a reduced demand for goods. This is further reflected in reductions in the indexes measuring production, new orders, and order backlogs.

Summing up: Consumers are cautious and not spending much money and manufacturers are feeling the resultant pinch.

Byline: Lafferty (MF Merlin)