Chicago purchasers index inches up from record low
U.S. business activity contracted in February for a fifth consecutive month, a sign manufacturing is weakening as the recession extends into a second year.
The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 34.2, higher than forecast, from 33.3 the prior month, when it reached the lowest reading since March 1982. Readings below 50 signal a contraction.
Companies including Deere & Co. and Ford Motor Co. are reducing investments and cutting staff as the worst credit freeze in seven decades pushes the economy into a deeper recession. President Barack Obama is orchestrating a surge in federal spending programs while the Federal Reserve is flooding markets with cash to thaw credit.
"Manufacturing is in the midst of a severe downturn," Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. "Autos remain at the root of the troubles for Midwest manufacturers."
A government report today showed the U.S. economy shrank in the fourth quarter at the fastest pace since 1982 as consumer spending plunged, inventories dropped and exports sank. Gross domestic product contracted at a 6.2 percent annual pace from October through December, the Commerce Department said in Washington. Business investment fell at a 21 percent rate.
Economists projected the Chicago purchasers index would drop to 33, based on the median estimate of 53 economists in a Bloomberg News survey. Forecasts ranged from 28.8 to 36.0.
Shrinking Orders
The new orders gauge decreased to 30.6 from 30.7 the previous month and the production index improved to 34.7 from 29.7.
The employment index slumped to 25.2, the lowest level in seven years, from 34.8, the report showed. Slumping demand may lead to more firings this year after the economy lost 3.6 million jobs since the downturn began in December 2007, the worst employment slump in the post World War II era.
A measure of prices paid for raw materials decreased to 37.8 from 39.8 the prior month, while a gauge of delivery times fell to 51 from 51.9.
Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy.
National Index
The Institute for Supply Management's national manufacturing index, due March 2, probably fell this month, according to the Bloomberg survey median.
A government report yesterday showed orders for U.S. durable goods fell in January for a record sixth consecutive month.
Carmakers are leading the manufacturing downturn. Detroit- based General Motors Corp. yesterday reported the second-biggest quarterly loss in its 100-year history, as Chief Executive Officer Rick Wagoner asked the Treasury for $16.6 billion more in loans to survive through 2009.
Exporters are also hurting. Moline-based Deere, the world's largest maker of farm equipment, said Feb. 18 that first-quarter profit fell 45 percent and lowered its full-year earnings forecast because tight credit.
"Ongoing higher material costs, the deepening global recession, and volatile foreign exchange rates have put downward pressure on our financial results," Chief Executive Officer Robert Lane said.