Manufacturing, Home Prices Probably Sank: U.S. Economy Preview

Manufacturing, Home Prices Probably Sank: U.S. Economy Preview


Dec. 28 (Bloomberg) -- Manufacturing in the U.S. probably shrank at the fastest pace since 1980 as the deepening global recession forced customers in North America, Europe and Asia to cut back, economists said before reports this week.

The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading in almost three decades, according to the median estimate of economists surveyed by Bloomberg News. A separate report may show the record drop in home prices accelerated in October.

The real-estate crash has reverberated throughout the world as credit markets seized up, choking off demand for everything from cars and trucks to computers and appliances. President- elect Barack Obama, who takes office Jan. 20, has said his first priority will be to pass an economic stimulus plan that will invest in public works and create or save 3 million jobs.

“Manufacturing is getting it from every direction,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Domestic demand is falling apart and foreign demand is falling apart.”

The Tempe, Arizona-based ISM’s factory report is due Jan. 2. Readings below 50 indicate contraction.

Regional surveys have already signaled the manufacturing slump persisted this month. The Federal Reserve Bank of New York’s general economic index fell in December to the lowest level since records began in 2001, and the Philadelphia Fed’s index showed industries in that region contracted for the 12th time in 13 months.

Chicago Index

The Institute for Supply Management-Chicago’s U.S. business activity index, due Dec. 30, is projected to decline to 33, the lowest level since 1982, according to the survey median.

The Standard & Poor’s industrial index is down 37 percent this year, compared with a 32 percent drop in the broader 500 index.

Automakers have been among the hardest hit as sales in November dropped to the lowest level in a quarter century, according to industry figures. President George W. Bush announced Dec. 19 that General Motors Corp. and Chrysler LLC will get $13.4 billion in initial government loans to keep operating while they restructure operations to return to profitability.

The U.S. recession has spread overseas and that’s hurting foreign demand for American-made goods.

Pittsburgh-based PPG Industries Inc., the world’s second- biggest coatings maker, on Dec. 22 said fourth-quarter earnings will fall more than analysts estimated because the weak global economy is hurting auto-paint and glass sales.

Global Slowdown

“Market softness seen initially in the U.S. industrial markets is now prevalent on a global basis,” Chief Financial Officer William H. Hernandez said in a statement. “Our businesses that serve these industrial end-markets are experiencing significant volume deterioration.”

Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009. The National Bureau of Economic Research on Dec. 1 announced the U.S. fell into a recession a year ago.

The decline in property values that is at the root of the credit crunch probably deepened, another report due on Dec. 30 may show.

The S&P/Case-Shiller index for the 20 largest metropolitan areas will show that home prices fell 17.8 percent in October from a year earlier, the biggest decline since record keeping began in 2001.

Falling home prices make it harder for homeowners to refinance, leading to a surge in foreclosures and weaker consumer spending. Declining stock and home values caused household net worth to drop by a record $2.8 trillion in the third quarter, according to the Fed.

Consumer confidence, meanwhile, may have edged up for a second month in December thanks to plunging gasoline prices. The Conference Board’s gauge, due Dec. 30, rose to 45.5 from 44.9 in November, according to the survey median. The gauge reached a record-low 38.8 in October.

BLOOMBERG