The U.S. Institute for Supply Management manufacturing index for February fell to a lower-than-expected level, but economists still see signs of strength in the U.S. manufacturing industries.

The ISM came in at 61.4, down from the previous reading of 63.6. “Despite the decline, the survey still points to a solid level of activity in the U.S. factory sector and is in the ninth straight month of expansion,” says BMO Nesbitt Burns Inc. chief economist, Sherry Cooper. “New orders and production also fell, but remain at levels pointing to a solid performance by U.S. producers. Inventories continue to remain tight, while production backlogs are building.”

Cooper says that the big story in the report is the prices paid and employment components, which signal that, “the clouds hovering over the U.S. job market seem to be parting, just as the U.S. presidential election campaign is warming up.”

TD Bank economist Gillian Manning said the ISM report provided yet more evidence that the beleaguered U.S. manufacturing sector is coming back to life. “The positive tone of today’s report was bolstered by comments in the text indicating that many respondents pronounced themselves encouraged by the ‘increased breadth of the recovery in manufacturing’ – evident in the fact that all 20 industries surveyed reported growth last month,” she said in a report. “The data are consistent with the U.S. economy growing at an annualized pace of more than 4% in the first quarter of 2004.”

RBC Financial Group noted the that overall, the month of February saw expansionary activity at manufacturers coupled with emerging signs of pipeline inflationary pressures and ongoing job market stabilization that point to new emerging risks and opportunities in the U.S. economy. “A continuation of such themes would materially impact the degree and timing of monetary tightening to help offset large amounts of fiscal stimulus,” said Derek Holt, RBC assistant chief economist.

RBC also notes that other data releases showed U.S. personal income grew by only 0.2% last month, but personal spending increased by 0.4%.

As well, it was reported that construction spending fell by 0.3% last month, sharply against consensus expectations for a rise of 0.2%. “Bad weather was a drag on outlays — the headline 0.3% drop was the first since last spring. Housing remained solid but other private building activity fell,” Cooper says.

“It is becoming virtually undeniable that the U.S. factory sector is improving, and that the momentum is sustainable. All manufacturing industries (20 of 20) reported growth in February, and job gains loom,” Cooper said.