US manufacturing falls again

In December, personal spending fell 1 percent, according to the Commerce Department. It was the sixth straight month that consumer spending declined, further straining US businesses. (Jeff Chiu/Associated Press)

WASHINGTON - Manufacturing in the United States shrank again last month and consumer spending recorded an unprecedented sixth monthly decline in December, offering no sign the economy has hit bottom.

The Institute for Supply Management's factory index was 35.6 in January; readings less than 50 signal a contraction and the measure has been below that level since February 2008. The Commerce Department said personal spending fell 1 percent in December, and reported a third monthly drop in construction.

Factories are likely to cut back further as the slump in household purchases leaves companies with stockpiles of unsold goods. General Motors Corp. plans to slash production at 15 plants through June in an effort to work off the surplus inventory, and Chrysler LLC, Ford Motor Co., and Toyota Motor Corp. are also cutting back.

Yesterday's construction report showed that the collapse in residential building may be spreading to commercial properties. Nonresidential construction slid 0.6 percent in December, the biggest drop since July. Total building fell 1.4 percent in the month, capping the worst year on record.

Consumers boosted savings in December as they sought to insulate themselves from the spreading US recession. The rate rose to 3.6 percent, the highest level since May, when it climbed with the receipt of tax rebates from a previous fiscal-stimulus effort. Personal incomes slipped 0.2 percent in the month.

The economic downturn continues to keep inflation at bay, while raising some risk of deflation - which would worsen the recession by making debts harder to pay and banks less likely to lend. The Federal Reserve's preferred measure, the personal consumption expenditures price index excluding food and energy, was unchanged in December for a third month, the Commerce Department said.

The ISM's gauge of new orders rose to 33.2 from 23.1 the prior month, when it reached its lowest level since records began in 1948. ISM's export orders gauge increased to 37.5 from 35.5.

The gauge of inventories fell to 37.5, the lowest since July 2001, from 39.6.

"Manufacturing has a long way to go toward recovery," Norbert Ore, chairman of the ISM factory survey, said in a conference call. Companies are in a "very strong liquidation mode" regarding the inventories.

The world's largest economy may contract at a 5.5 percent annual pace this quarter after declining at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley. Last quarter's drop was the biggest since 1982.