Manufacturing declines 3rd month in row Slowdowns abroad affecting U.S. factories, NAPM survey shows

The economy

September 02, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. manufacturing contracted in August for the third month in a row, suggesting that the slowdown in Asia and other emerging markets is taking a toll on orders at the nation's factories, an industry survey showed.

The National Association of Purchasing Management's (NAPM's) manufacturing index hovered in the danger zone last month, posting a smaller-than-expected increase to 49.4 from 49.1 in July.

An index below 50 means that a majority of the manufacturers surveyed said their business deteriorated.

For 22 months prior to June, the index held above 50 -- signaling growth.

'Serious retrenchment'

"The manufacturing sector is in a serious retrenchment and will be for a number of months to come," said Chris Low, an economist at First Tennessee Capital Markets in New York.

"They're getting beat up pretty bad."

So far, though, consumer spending and housing have provided a buffer against the global crisis and the manufacturing slowdown.

And there are signs that may continue.

The index of leading economic indicators rose 0.4 percent in July to 105.4, rebounding from two months of declines, and reflecting an abundance of jobs.

Construction spending, meantime, climbed 0.4 percent in July on strength in homebuilding to a record annual rate of $650.4 billion.

In the NAPM report, closely watched by the Wall Street and Federal Reserve policy-makers, weaker orders and exports offset an increase in factory production following the end of the 54-day strike at two General Motors Corp. parts plants.

NAPM's new-orders index, a gauge of current demand, fell to 50.9 in August from 53.2 during July.

The export index, a gauge of Asian and other international demand, fell to 44.1 in August -- an all-time low -- from 45.0 during July.

'Asia, Asia, Asia'

"It's Asia, Asia, Asia," said Astrid Adolfson, an economist at MCM MoneyWatch in New York. "We continue to have a soft manufacturing sector."

NAPM also reported that its index of prices paid increased to 38.4 in August from 38.0 during July, a low reading indicating that inflation remained under wraps even though a few more companies reported price increases during the month.

Global commodity prices have fallen amid sagging demand from the Pacific Rim and an excess of many producers, ranging from oil to copper.

July's gain in construction spending followed a 2.0 percent rise in June. Residential construction spending -- which accounts for about half of all spending on U.S. buildings -- rose 1.4 percent in July to a record $296.3 billion annual rate.

Meanwhile, the index of leading economic indicators (LEI) rose in July for the first time in three months, which could ease concerns of a recession anytime soon. The Conference Board's index, intended to project economic activity over the next half year, rose 0.4 percent in July, after falling 0.2 percent in June.

Of the 10 indicators that make up the index, six made a positive contribution in July, two were negative and two were unchanged. The LEI components suggesting stronger growth: weekly jobless claims, consumer goods orders to manufacturers, stock prices, building permits, money supply and consumer expectations.

July's increase followed two straight monthly declines. One rule of thumb, analysts said, is that three consecutive declines in the LEI could predict a recession. Before May's drop, the last time the leading indicators index fell was April 1997, when it dropped 0.1 percent.

It was the only negative index reading of the past 28 months, and provided little information about growth in the coming quarters.

Pub Date: 9/02/98

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