A gauge of U.S. manufacturing activity that fell to a 26-year low last week followed similarly weak readings in Europe and China, fueling fears of a deepening global downturn.
The Institute for Supply Management’s index of manufacturing activity for November fell to 36.2 from October’s 38.9. The reading was worse than Wall Street economists’ expectations of 38.4, according to a survey by Thomson Reuters. A figure below 50 indicates the sector is contracting.
The November reading is the lowest since May 1982, the Tempe, Ariz.-based ISM said. The report is based on a survey of corporate purchasing managers.
The report came the same day that the National Bureau of Economic Research, a private group, said the U.S. economy has been in a recession since December 2007.
By one benchmark, a recession occurs when the economy’s output declines for two straight quarters. But the bureau’s dating committee uses more precise measures that include employment, personal income and industrial output.
The stock market reacted badly to the gloomy economic reports and the official finding of a recession. The Dow Jones industrial average sank nearly 680 points, or 7.7 percent.
Tough Times
Economists said the manufacturing survey showed that the U.S. economy is in a steep recession and that tough times will continue for manufacturers.
It “points to one of the deepest contractions in industrial output in the post-World War II era,” wrote Michael Feroli, U.S. economist at JPMorgan Chase & Co. Inc., in a research note.
Exports, a key source of strength for manufacturers over the past couple of years, are no longer a bright spot as major economies in Europe and Asia also slow.
The ISM’s index of new export orders remained at 41, the same as in October and the lowest reading since 1988. That’s down from 57 as recently as August.
“Rapid export growth was a crucial support to the economy for most of this year,” said Nigel Gault, chief U.S. economist for IHS Global Insight. “That key prop is now being knocked away as a global recession takes hold.”
Separate manufacturing surveys on Dec. 1 from the United Kingdom, the European Union, China and other countries also were weak, economists said.
Feroli said in an interview that a global manufacturing index compiled by JPMorgan Chase, fell to 36.4 for November, its lowest point since 1998. The global index consists of aggregated data from about 30 countries, he said.
More Bad News
Other figures from the manufacturing survey also signaled trouble ahead.
The ISM’s new-orders index fell to 27.9 from 32.2, its lowest level since June 1980. That indicates production will likely slow in coming months, dragging the index lower, economists said.
Separately, the Commerce Department also reported Dec. 1 that construction spending fell by 1.2 percent in October, much more than the 0.9 percent drop analysts expected. Construction of single-family homes plunged 4.6 percent from September, pulling overall housing construction down by 3.5 percent, the department said.
“There’s hardly anything encouraging to find in the report,” said David Seiders, an economist at the National Association of Home Builders, who expects construction to keep falling until at least next summer 2009.
Developers have also put a halt on office building projects recently because of financing problems and weak demand, said Ken Simonson, chief economist for the Associated General Contractors of America.
Simonson foresees construction employment declining for the next six to 12 months.
Manufacturers are likely to continue cutting jobs, economists said. Feroli estimates that U.S. factories cut 70,000 jobs in November, after reducing payrolls by 90,000 in October. The Labor Department will issue its November employment report Dec. 5.
Associated Press Writers Martin Crutsinger, Mike Obel, Alan Zibel and Ellen Simon contributed to this report.
