US manufacturing index slumps
November activity hits 26-year low
WASHINGTON - A gauge of US manufacturing activity that fell to a 26-year low yesterday followed similarly weak readings in Europe and China, fueling fears of a deepening global downturn.
The Institute for Supply Management's index of manufacturing activity for November fell to 36.2 from October's 38.9. The reading was worse than Wall Street economists' expectations of 38.4, according to a survey by Thomson Reuters. A figure below 50 indicates the sector is contracting.
The November reading is the lowest since May 1982, the Tempe, Ariz.-based ISM said. The report is based on a survey of corporate purchasing managers.
Economists said the survey showed that the US economy is in a steep recession and that tough times will continue for manufacturers. It "points to one of the deepest contractions in industrial output in the post-World War II era," wrote Michael Feroli, US economist at JPMorgan Chase & Co. Inc., in a research note.
Exports, a key source of strength for manufacturers over the past couple of years, are no longer a bright spot as major economies in Europe and Asia also slow.
The ISM's index of new export orders remained at 41, the same as in October and the lowest reading since 1988. That's down from 57 as recently as August.
"Rapid export growth was a crucial support to the economy for most of this year," said Nigel Gault, chief US economist for IHS Global Insight. "That key prop is now being knocked away as a global recession takes hold."
Separate manufacturing surveys yesterday from the United Kingdom, the European Union, China, and other countries also were weak, economists said.
Feroli said in an interview that a global manufacturing index compiled by JPMorgan Chase fell to 36.4 for November, its lowest point since 1998. The global index consists of aggregated data from about 30 countries, he said.
Jay Bryson, global economist for Wachovia Corp., said increases in net US exports added about 1.4 percentage points to the economy's growth rate in 2008. But that figure is expected to slip next year to one-half a percentage point, he said.
Exports account for up to one-third of US manufacturers' sales, Bryson noted. The strengthening of the US dollar since September has also made US goods more expensive overseas. But analysts said that isn't as big a factor as faltering economies overseas.
Other figures from the manufacturing survey also signaled trouble ahead: The ISM's new-orders index fell to 27.9 from 32.2, its lowest since June 1980. That indicates production will likely slow in coming months, dragging the index lower, economists said.
Separately, the Commerce Department reported yesterday that construction spending fell by 1.2 percent in October, more than the 0.9 percent drop analysts expected. Construction of single-family homes plunged 4.6 percent from September, pulling overall housing construction down by 3.5 percent, the department said.
Developers have also put a halt on office building projects recently because of financing problems and weak demand, said Ken Simonson, chief economist for the Associated General Contractors of America. Simonson foresees construction employment declining for the next six to 12 months.