Manufacturing index declines Asian crisis caused NATM gauge to fall nearly 2 points in Dec.

January 03, 1998|By BLOOMBERG NEWS

WASHINGTON -- A closely watched gauge of U.S. manufacturing cooled last month as Asia's economic crisis depressed exports. Factory orders and production also sagged from a month earlier.

The National Association of Purchasing Management said yesterday that its index declined to 52.5 last month -- the lowest reading since January 1997 -- from 54.4 in November. Analysts expected a December reading of 54.0. A reading of 50 or more in the NAPM index means manufacturing is expanding, while a reading below 50 signals a contraction.

"Clearly, Asia is at work. Manufacturing has lost some momentum," said William Sullivan, an economist at Dean Witter Securities in New York. Snarled traffic on the Union Pacific, the nation's largest railroad, also contributed to the slowdown, analysts said.

The NAPM's export index dropped to 50.6 in December -- the lowest since February 1996 -- from 54.2 in November. The weakness will probably be more pronounced during the second half of the new year, said Ian Shepherdson, an economist at HSBC Securities in New York.

Investors interpreted the news as a sign the Federal Reserve will hold interest rates steady. The benchmark 30-year U.S. Treasury bond rose more than a full point, pushing the yield down almost 9 basis points to 5.84 percent -- the lowest in more than four years. Stocks were higher in New York trading, with the Dow Jones Industrial Average rising 56.79 points to close at 7965.04, or 0.72 percent.

Slowing exports to Asia could cut growth in the U.S. by half a percentage point this year, according to a forecast by Kathleen Camilli, an economist at investment firm Tucker Anthony in New York. "Quite frankly, this could change quickly should Asian economic weakness become more pervasive," Camilli's forecast said.

The Tempe, Ariz.-based NAPM's index is based on nationwide responses from executives at more than 300 companies, in 20 industries, from transportation equipment, primary metals and electronics to petroleum, paper, food and textiles.

As 1997 ended, manufacturers were wary about the economic outlook for the new year and concerned about "weakening in new orders, the strength in the dollar, Asian demand and railroad delays," said Norbert Ore, chairman of the NAPM survey committee and an executive at Sonoco Products Co., a packaging producer.

Ore said Asia's turmoil was also reflected in the NAPM's imports index, which rose to 57.3 last month from 52.4 in November. As Asian countries' currencies lose value against the dollar, their products become cheaper for U.S. importers.

Elsewhere in yesterday's NAPM report:

The closely watched price index, considered by some an indication of the inflation rate, fell to 50.3 in December from 51.9 during November.

The delivery index decreased to 53.6 from 55.6.

The new orders index decreased to 53.0 from 54.5, and the inventories index rose to 47.4 from 43.4.

The indexes don't measure how much factories produced or prices rose or fell. Instead, they gauge the number of manufacturers surveyed that reported increased production or paid more for raw materials.

While overall growth in the quarter ended Dec. 31 was healthy, "lately some signs have emerged that the economy is slowing," according to economist Ed Hyman's ISI Group in New York. "We hear from companies that December was weaker" in a variety of industries, the firm reported.

Problems continue to plague the Union Pacific Railroad. The unit of Union Pacific Corp. on Tuesday reported delays lengthened for a second straight week as crew shortages thwarted efforts to resolve a six-month freight logjam.

Pub Date: 1/03/98

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