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The Manufacturing Downturn Worsens

Tuesday January 2, 11:25 AM EST

By Marjorie Olster

NEW YORK (Reuters) - A key gauge of U.S. manufacturing activity fell in December to its lowest level in almost 10 years in a sign of deepening malaise in the sector hardest hit by the economy's slowdown in the past six months.

The National Association of Purchasing Management (NAPM) main index of factory activity slipped to 43.7 from 47.7 in November. The latest reading was the lowest since April 1991 when the index was at 42.9.

It was the fifth straight month that the index has been below 50, which indicates a contraction. December's figure was well below the 47.0 forecast by economists in a Reuters poll.

"The manufacturing sector is definitely struggling at this point," Norbert Ore, chair of NAPM's manufacturing Business Survey Committee, said. "There are few signs of encouragement as we close out 2000."

Prices of U.S. Treasuries surged after the NAPM was released and economists said it had heightened expectations that the Federal Reserve will cut interest rates at the end of this month. The 10-year note rose more than a full point and its yield fell below 5.0 percent for the first time since April 1999.

Technology stocks deepened early losses after the data and the Nasdaq composite index slumped more than 6.0 percent on the morning of the first trading day of the new year.

Ore said the latest NAPM numbers showed a deepening of the downturn in manufacturing, which accounts for about a fifth of U.S. economic activity and jobs.

But some analysts say this is a two-speed economy, with manufacturing in a contraction but the service sector, which accounts for 80 percent of the economy, still growing at a fairly healthy pace.

Though the latest NAPM reading was the lowest since April 1991, when the country was emerging from recession, Ore said today's economy is more resilient than that of 10 years ago, thanks to increased productivity and globalization.

NAPM's new orders index also fell sharply to 42.0 in December from 48.4 in November, indicating further weakness in manufacturing production during the first three months of the year.

Prices paid, an inflation gauge, rose to 61.0 from 56.6 due to a rise in energy costs. New export orders remained below the key level of 50 for the third straight month, showing a decline in activity.

©2000 Reuters Limited.

-- (in@economic.news), January 02, 2001

Answers

http://www.dismal.com/economy/releases/release_2k.asp?r=usa_napm

-- (in@economic.news), January 02, 2001.