Housing, auto dips take toll in Sept.

Manufacturing's growth pace slows

October 03, 2006|By James P. Miller

U.S. manufacturing activity grew at the slowest pace in 16 months in September, as the deepening housing slump combined with the auto industry's slowdown to take a toll on the nation's manufacturers, according to a closely watched trade group report released yesterday.

The Institute for Supply Management said its manufacturing index declined to 52.9 in September from 54.5 in August. Even so, the manufacturing sector expanded for the 40th consecutive month, but its rate of growth fell short of the reading of 53.5 most economists had been expecting.

"The manufacturing sector continues on a trend of slowing growth," the institute said of the latest survey.

"It is apparent that manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market," said Norbert J. Ore, who heads the survey group for the institute.

The institute surveys thousands of manufacturers monthly, collecting information about new orders, order backlogs, staffing levels and raw-material costs. Under the survey format, a reading above 50 means the sector is expanding, while a reading below 50 suggests contraction.

Despite the deceleration apparent in the September survey, few observers found reason for alarm. "Even with the drop, manufacturing conditions are still decent," said Daniel Jester of Moody's Economy.com.

However, Bart Melek, senior economist for BMO Nesbitt Burns, said some of the data "point to a bumpy ride for U.S. manufacturing."

Although manufacturing continues to grow with the help of business spending, he said, the latest figures make it clear that "the housing market slump is extending into other parts of the economy."

Businesses surveyed by the institute said new orders held steady in September, while production growth slowed.

The prices businesses paid for materials and goods used in production slowed sharply, reflecting the recent falloff in energy prices.

The decline is welcome, because it suggests "inflation pressures are finally coming off," said Michael R. Englund of Action Economics.

The most eye-catching component in yesterday's report was in the employment category, which showed a drop to 49.4 from 54. In other words, the survey showed manufacturers' employment contracting for the first month since November 2003.

James P. Miller writes for the Chicago Tribune.

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