U.S. manufacturing in recession; economy falters

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Posted at 1:01 p.m. PST Thursday, February 1, 2001

U.S. manufacturing in recession; economy falters By Ross Finley

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NEW YORK (Reuters) - U.S. manufacturing activity withered for a sixth straight month in January, signaling one-fifth of the economy had slipped into recession and that overall growth may have stalled, a survey showed on Thursday.

The report, delivered a day after the Federal Reserve slashed rates by a half-point for the second time in less than a month, overshadowed earlier figures showing a rise in both personal spending and construction spending in December, and a jump in unemployment claims during the past week.

The National Association of Purchasing Management (NAPM) said its January manufacturing index slid from 44.3 in December to 41.2 -- its lowest level since March 1991, at the tail end of the last recession. Economists had expected a 43.6 reading.

``This has confirmed the feeling that the manufacturing sector is in recession...(and) the impression the manufacturing sector is in free-fall,'' said Anthony Karydakis, senior financial economist at Banc One Capital Markets in Chicago.

Manufacturers have been struggling to cope with high energy costs, weakening export sales and sluggish consumer demand for big-ticket items, as well as an overhang of inventories built up when the economy was booming in the first half of 2000.

Financial markets, still digesting the Fed's half-point rate cut were little jostled by the news as further manufacturing weakness was widely expected. U.S. Treasury bonds extended an earlier rally, while major stock indices were mixed. The dollar was little changed against major currencies.

NAPM chair Norbert Ore said the January manufacturing index correlated to an overall economic contraction of 0.6 percent at an annualized pace, meaning that last month the broader economy failed to grow for the first time in 117 months, or nearly 10 years.

In another ominous sign for America's industrial sector in the months ahead, the NAPM new orders index, a gauge of production to come, tumbled from 42.5 in December to 37.8 -- its lowest since January 1991. The NAPM production index, meanwhile, plunged to its lowest point since May 1982.

``Obviously the economy is in trouble -- the Fed has lowered rates dramatically -- but I wouldn't generalize from the state of the manufacturing sector that the overall economy is in the same dismal state,'' said Banc One's Karydakis.

DECEMBER SPENDING UP

Consumer spending rose by 0.3 percent pace in December, on trend, but the climb was driven largely by costlier services as Americans paid more for electricity and natural gas, the Commerce Department said.

Consumers cut back on purchases of expensive items like new cars backing a report earlier this week that said a fall consumer confidence to four-year lows had reined in Americans' appetite to buy expensive items.

Reports from vehicle makers showed January auto sales dropped, although less severely than many analysts had expected. The falls were led by an 11.3 percent plunge in sales by No. 2 automaker Ford Motor Co..

Spending on durable goods tumbled 1.9 percent -- the sharpest fall since a 2.5 percent drop in May 1999 -- after a 0.9 percent drop in November. Spending on nondurables like food was flat after a 0.1 percent drop the month before.

Incomes, meanwhile, rose by 0.4 percent after a 0.2 percent fall in November and a 0.2 percent slowing in October.

Spending on U.S. construction projects rose unexpectedly in December, led by gains in single-family home and office construction as lower interest rates, even with the U.S. economy rapidly losing steam, have encouraged building.

Construction spending rose 0.6 percent, handily beating analysts estimates for a 0.4 percent drop and after a 0.2 percent increase in November. For all of 2000, construction spending rose 5.7 percent compared with a 7.4 percent rise the year before.

Separately, the Labor Department said the number of weekly claims for unemployment benefits increased to 346,000 last week from 314,000 a week earlier.

While that suggested some easing in tight labor markets, the closely-watched four-week moving average of claims, considered a better barometer of labor market conditions, fell to 327,000 from the prior week's 335,500.

On Friday, the Labor Department is scheduled to issue its report on January employment. Wall Street analysts predict the unemployment rate will rise to 4.1 percent from 4.0 percent

http://www.contracostatimes.com/news/nation/stories_nationwire/808941l.htm

-- Martin Thompson (mthom1927@aol.com), February 01, 2001


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