bloomberg.com
U.S. Economy
Sat, 02 Dec 2000, 8:51pm EST
U.S. Economy: NAPM Index Falls to Lowest in Two Years
By Siobhan Hughes
Washington, Dec. 1 (Bloomberg) -- U.S. manufacturing declined in November to the lowest level in two years as orders shrank for a fifth month in a row, suggesting factories may continue to struggle in the months ahead, according to an industry survey.
``It doesn't look like it's going to be able to bounce back quickly,'' said Chris Rupkey, senior financial economist at the Bank of Tokyo-Mitsubishi Ltd. in New York.
The National Association of Purchasing Management's factory index dropped to 47.7 last month from 48.3 in October. It was the fourth straight month the index fell below 50, a level that signals contraction, and the lowest reading since December 1998.
U.S. automakers reported their sales slumped in November. And NAPM's index of new orders hasn't been above 50 since June, the longest such stretch since August 1995-March 1996.
The last time the overall index fell below 50 for four or more months was June 1998-January 1999, when U.S. manufacturing was hurt by recessions in Asia and Latin America. Further declines in manufacturing may lead Federal Reserve policy-makers to reassess their position that inflation is a greater risk to the economy than slumping growth. The Fed next meets Dec. 19.
Even so, U.S. Treasury securities fell after the report showed less of a contraction in manufacturing than suggested in a Chicago-area report yesterday. Stocks were mixed. ``The sky isn't falling in on manufacturing across the whole U.S.,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York.
Construction Spending
A separate report showed construction spending rose for a third straight month, led by gains in multifamily housing and commercial buildings. October's 0.9 percent increase followed a 1.9 percent rise in September. Spending on single-family homes declined for a sixth straight month.
The Treasury's 10-year note fell 3/8 point, pushing up its yield 4 basis points to 5.51 percent, after the yield fell to a 1 1/2-year low yesterday. The Nasdaq Composite Index rose 41 points, or 1.5 percent, to close at 2645.29. The Dow Jones Industrial Average fell 41 points, or 0.4 percent, to close at 10373.54.
General Motors Corp., Ford Motor Co. and DaimlerChrysler AG sold fewer new cars and trucks in November. GM's sales of North American-built cars and light trucks were 8.4 percent lower than November a year ago, while Ford's were down 8.2 percent. Sales declined 5.5 percent at DaimlerChrysler's Chrysler arm.
Production Cuts
Both Ford and DaimlerChrysler today said they would trim production to keep inventories from building. Americans are buying fewer vehicles, even as automakers pile on discounts to keep sales momentum.
Business at Chicago-area factories contracted in November as new orders plunged to the lowest level in 18 years, according to a survey of the region's purchasing managers, released yesterday. The Chicago index fell to 41.7 last month from 48.7 in October.
Automobile assembly and parts factories are heavily concentrated in that area of the country, and those manufacturers have been feeling the sting of slower demand and high inventories. Of the 20 industries measured in the national NAPM report, seven reported improved business last month, including makers of industrial equipment, furniture and chemicals.
``The issue is to try to sort out how much of this is general in durable goods and how much of it is specific to the auto industry,'' St. Louis Federal Reserve Bank President William Poole said yesterday.
Inventories, Employment
NAPM's factory inventory index fell to 42.2, the lowest since December 1998. The employment index declined to 46 last month, the lowest since February 1999.
The production index, a gauge of current output, rose to 49.6 in November from 48.4 a month earlier. The index of new orders rose to 48.4 in November from 48 in October. Even with the increase, the index of new orders has shown contraction for five straight months.
The export orders index rose to 48.7 last month from 48.3. The last time the export index reading was below 50 for two straight months was January 1998-January 1999.
NAPM's index of prices paid for raw materials rose to 56.6 in November, close to 56.5 in October and was above analyst's expectations of 55. Some of the increase may be attributed to rising energy costs. The price of crude oil futures for January delivery on the New York Mercantile Exchange averaged $34.19 a barrel last month, up from October's average of $32.93 a barrel.
Fed policy-makers raised interest rates six times beginning in June of last year in an effort to cool the economy and keep inflation from accelerating. In the third quarter, the economy rose at a 2.4 percent annual rate, the slowest in four years, the Commerce Department reported this week.
Exports
Some European economies are growing more slowly, and that's restraining orders for U.S. goods. The U.K. economy grew 0.7 percent in the third quarter, less than the 0.9 percent in the second.
Weak global demand has been caused by the strength of the dollar against other currencies. The strong dollar makes American- made goods more expensive for foreign buyers. The dollar has risen almost 12 percent this year against a trade-weighted mix of currencies.
Cooler demand has left some businesses with rising inventories. Stockpiles of goods rose $78.6 billion at an annual rate in the second quarter, accounting for more than one-fourth of the economy's growth, even as consumer spending dropped to its slowest pace in three years.
As a result, retailers and other companies have been reluctant to order more goods. New orders at U.S. makers of durable goods fell in October for the first time in three months as demand weakened for aircraft, metals and electrical equipment, the Commerce Department reported this week.
``We're working through an inventory build-up, which suppresses manufacturing even as consumers continue to spend,'' said Diane Swonk, chief economist at Bank One Corp. in Chicago, before the report.
Xilinx Inc. and Altera Corp., the world's largest makers of programmable computer chips, may feel the pinch. The companies together sell about 70 percent of the easy-to-upgrade chips, and concern is mounting that customers such as Nortel Networks Inc. and Lucent Technologies Inc. may be overstocked after building inventories based on optimistic sales forecasts. |
