Index signals manufacturing slide, reflecting Asian crisis, GM strikes Prices paid by factories lowest since 1982

Economy

August 04, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. manufacturing posted its weakest showing in more than two years in July as the economic crisis in Asia and the General Motors Corp. strike stifled production. Prices paid by factories fell to their lowest level in almost 16 years.

The National Association of Purchasing Management said yesterday that its index of manufacturing activity fell to 49.1 for the month -- its fourth consecutive decline and the lowest since February 1996 -- from 49.6 in June.

Index readings below 50 mean the number of manufacturers who said business had deteriorated was greater than the number of those saying it had improved.

"The Asian impact on the U.S. continues to intensify," said Ian Shepherdson, an economist at HSBC Securities in New York.

The GM strike, which shut down the auto manufacturer's North American output, also depressed overall U.S. economic growth, said Scott Brown, an economist at Raymond James & Associates in St. Petersburg, Fla.

While manufacturing contracted, other figures for June showed consumers are keeping the economy afloat as they benefit from low unemployment, low inflation and low interest rates.

Consumer spending and personal incomes both rose in June, Commerce Department figures showed yesterday. Spending rose by 0.6 percent -- led by a second straight monthly surge in purchases of durable goods -- after increasing 0.9 percent in May. It was the largest gain since July 1997. Incomes rose 0.2 percent in June after climbing 0.4 percent in May.

Construction spending also increased in June, rising 1.7 percent and reversing a May decline, government figures showed. Spending on houses and other residential construction increased 0.8 percent to a record annual rate of $290.0 billion, while spending on schools, roads and other public amenities to support the residential boom surged 3.2 percent to a $143.0 billion annual rate.

Bonds gained and stocks fell, as the reports reinforced expectations that Asia's troubles will hold back U.S. growth and cut into U.S. corporate earnings. The Treasury's benchmark 30-year bond rose 3/4 , pushing its yield down 5 basis points to 5.66 percent, 9 basis points above the all-time low reached July 6.

The Dow Jones industrial average fell 97 points, or 1.09 percent, to close at 8,786.74. It was the Dow's eighth drop in two weeks. The benchmark index has lost 6 percent of its value since rising to a record high July 17.

The National Association of Purchasing Management index of prices paid by manufacturers fell to 38.0 in July from 38.4 during June, indicating fewer companies reported price increases during the month. The July price index was the lowest since November 1982, when the economy was emerging from recession. Today, the turmoil in Asia is depressing industrial commodity prices.

A price index tied to the Commerce Department's income and spending report -- the price deflator for consumer spending -- also signaled that "inflation is dead," said Cheryl Katz, an economist at Merrill Lynch & Co. in New York. Businesses have little room to raise prices, Katz said.

Pub Date: 8/04/98

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