Manufacturing index drops to 28-year low
The Houston Chronicle/Ap
By ELLEN SIMON AP Business Writer
© 2009 The Associated Press
January 2, 2009

NEW YORK — Signs grew that the economy could turn even weaker in 2009, as an index of December manufacturing activity sank to its lowest point in 28 years. Every corner of the sector was down, from bakeries to cigarette-makers to aluminum smelters.

The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index fell to 32.4 in December, a greater-than-expected decline from November's reading of 36.2. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5.

Components of the index hit historic lows. New orders fell to their lowest level on records going back to 1948. Prices fell as the number of respondents saying they had paid more in December than in November sank to its lowest monthly reading since 1949.

A reading below 50 for the overall index indicates contraction. The index, based on a survey of the institute's members, has fallen steadily for the last five months as the economy deteriorated.

December's reading is the lowest since June 1980, when the economy was near the end of a six-month recession.

If December's rate of manufacturing activity were to persist for 2009, the nation's gross domestic product would show a 2.7 percent contraction, said Norbert Ore, chairman of the group's business survey committee. GDP, the broadest measure of economic activity, decreased at an annual rate of 0.5 percent in the third quarter of 2008, according to the Bureau of Economic Analysis.

"An increasingly constrained consumer, deepening woes for the housing sector, and a desire to pare inventories will all continue to weigh heavily on domestic demand," said Joshua Shapiro, chief U.S. economist at MFR Inc., an economics consulting firm in New York. "Overall U.S. manufacturing output, which has been shrinking since late 2007 and losing momentum at a more rapid rate recently, is likely to be even weaker in coming quarters."

Only three recessions in the history of the index have showed weaker manufacturing readings, said John Ryding, of RDQ Economics. Those recessions were in 1948 to 1949, 1973 to 1975 and 1980.

The U.S. weakness is part of a worldwide slowdown. China's manufacturing sector, which accounts for 43 percent of the economy, contracted for a fifth straight month in December. Singapore said its economy shrank in the fourth quarter, and South Korea said its exports fell 17.4 percent in December. With European manufacturing indexes also dropping, "the case for a massive global fiscal stimulus continues to grow," Ryding said.

Investors shrugged off the grim report on the new year's first day of trading, eager to start fresh after the losses of 2008. Stocks closed higher, with the Dow Jones industrial average up 258.30 to 9,034.69. Broader indexes were also higher.

As the economy sputters through a recession that began in December 2007, no industry is proving resistant. No sector reported overall growth in December. Also, none reported growth in new orders, production, employment or prices, as businesses from tobacco to coal products to foodmakers saw declines.

Declining prices, coming after the summer's soaring market for commodities, have sent manufacturers — especially in chemicals and metals — reeling.

Century Aluminum last month cut production at a West Virginia plant and said that it might have to cease production at the plant entirely unless it cuts costs and prices stabilize. LyondellBasell Industries, the third-largest independent chemical company in the world, said Wednesday that while several lenders had allowed it to postpone $160 million in loan payments, a Chapter 11 bankruptcy filing might still be an option.

The summer's commodity bubble was devastating for many food processors. Pilgrim's Pride Corp., the nation's largest chicken producer, filed for Chapter 11 bankruptcy protection on Dec. 1.

With the overall unemployment rate at 6.7 percent in November, the highest in 15 years, manufacturing continues to be one of the hardest hit sectors. The sector lost 85,000 jobs between October and November, according to the most recent data from the Bureau of Labor Statistics. More losses are expected in coming months as demand continues to be weak.

The purchasing managers' employment index showed its lowest reading since 1982 as manufacturers across industries continue to cut jobs.

Western Digital Corp., which makes computer hard drives, said in December it plans to cut 2,500 jobs. The drugmaker Bristol-Myers Squibb Co. said in December it would cut 800 jobs by the end of 2008.

Automotive supplier Visteon Corp. said Friday it will shift more than 2,000 workers to a four-day week and cut their pay by 20 percent as auto sales continue to founder. General Motors Corp. on Wednesday received the first tranche of $9.4 billion in low-cost loans from the U.S. Treasury, part of a package designed to keep ailing automakers in business.

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