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Manufacturing index declines to a 7-year low

Activity in September shrinks more than expected as tight credit and high commodity prices squeeze firms.

October 02, 2008|From the Associated Press

NEW YORK — A measure of U.S. manufacturing activity contracted more than expected last month, hitting the lowest level since the aftermath of the Sept. 11 attacks, as new orders slowed dramatically.

The Institute for Supply Management on Wednesday released a September reading of 43.5, the lowest level since October 2001. The reading dropped from 49.9 in August, the largest one-month decline since January 1984, when it fell to 60.5 from 69.9.

A reading above 50 signals growth.

"The headline ISM [measurement] has plunged into recession territory," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Wall Street economists had predicted a much stronger reading of 49.5, according to the consensus estimate of those surveyed by Thomson Reuters. The index has been hovering around what economists call "the boom-bust" line for most of the year.

The survey of purchasing managers found new orders fell to 38.8 in September from a reading of 48.3 in August. Employment, deliveries, inventories and manufacturers' order backlogs also fell.

Industries reporting contraction included apparel, furniture, machinery, transportation equipment and electrical appliances.

Tony Crescenzi, an analyst at Miller Tabak & Co., said the poor reading raised the chances that the Federal Reserve would make an emergency, between-meeting cut in its target short-term interest rates. The Fed's next scheduled meeting is Oct. 28-29.

High prices for commodities, along with tight credit conditions, have begun to squeeze companies. Pilgrim's Pride Corp., the nation's largest chicken producer, said last week that it expected a "significant" fiscal fourth-quarter loss. Industrial automation and control company Rockwell Automation Inc. said Wednesday that it would cut 600 sales and administrative jobs "in light of current and anticipated market conditions."

Separately, the Commerce Department on Wednesday said construction spending was flat in August, better than the 0.5% decline economists expected. The big surprise was a 0.3% rise in residential activity, the first increase in the housing area since March 2007.

Still, the government revised construction spending figures in July to show a much bigger drop of 1.4%, compared with the 0.6% decline initially reported.

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