U.S. Manufacturing Probably Shrank at Fastest Rate Since 1980

U.S. Manufacturing Probably Shrank at Fastest Rate Since 1980


Jan. 2 (Bloomberg) -- Manufacturing in the U.S. probably contracted in December at the fastest pace in almost three decades as the recession deepened and spread overseas, economists said before a report today.

The Institute for Supply Management’s factory index fell to 35.4, the lowest level since 1980, from 36.2 the prior month, according to the median estimate of 57 economists surveyed by Bloomberg News. A reading less than 50 signals contraction.

Clogged credit markets, the collapse in housing and mounting job losses have hurt demand for everything from furniture and appliances to automobiles, driving General Motors Corp. and Chrysler LLC to the brink of bankruptcy. The slump will extend into 2009 as downturns in Europe and Japan also depress exports.

“Whatever little domestic demand we had earlier has gone away, and the slowdown abroad is taking away the help we got from exports,” said Tim Quinlan, an economic analyst at Wachovia Corp. in Charlotte, North Carolina. “Manufacturing will continue to weaken throughout next year.”

The Tempe, Arizona-based group’s gauge, which covers about 12 percent of the economy, is due at 10 a.m. New York time. Forecasts ranged from 34 to 40 and the measure averaged 51.1 in 2007.

President-elect Barack Obama, who takes office Jan. 20, has said his first priority will be to pass an economic stimulus plan worth as much as $850 billion that will invest in public works and create or save 3 million jobs.

Regional Slumps

Regional surveys have already signaled the manufacturing slump persisted last 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 that region contracted for the 12th time in 13 months. A report from ISM-Chicago showed businesses shrank at close to the fastest pace in 26 years.

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

The carmakers last month expanded their traditional holiday shutdowns to clear out unwanted stock. Chrysler idled all 30 of its assembly plants on Dec. 17 for at least a month, while GM announced output cuts Dec. 12 that affected 20 plants.

The closings will extend into this month. Ford Motor Co. said 9 of 15 North American factories would shut for the first week in January.

Weakness Spreads

The factory slump has spread well beyond autos as demand from abroad also weakens. Ingersoll-Rand Co., the maker of Thermo King and Hussmann refrigeration equipment, said last month that profit will fall short of fourth-quarter and full-year estimates after demand declined “sharply” in North America and Western Europe.

“Probably the U.S. and developed world are in recession,” General Electric Co. Chief Executive Officer Jeffrey Immelt said in his annual outlook address on Dec. 16. “The environment is still the toughest, for people of my generation, that we’ve ever seen.”

U.S. exports dropped in October for a third straight month, leading to an unexpected widening in the trade gap, figures from the Commerce Department last month showed. The drop indicated the economy was sinking even faster than previously estimated.

BLOOMBERG