Signs grew that the economy could turn even weaker in 2009, as an index of December manufacturing activity sank to its lowest point in 28 years. Every corner of the sector was down, from bakeries to cigarette-makers to aluminum smelters.
The Institute for Supply Management, a trade group of purchasing executives, said yesterday that its manufacturing index fell to 32.4 in December, a greater-than-expected decline from November's reading of 36.2.
Even so, Wall Street brushed aside the report and started the new year with a big rally yesterday, sending the Dow Jones industrials up more than 250 points and to its first close above 9,000 in two months. All the major indexes shot up more than 6 percent for the week.
The Dow rose 258.30, or 2.94 percent, to 9,034.69, finishing the week up 6.1 percent. The blue chips last closed above 9,000 on Nov. 5, when they stood at 9,139.27. The Dow, the oldest of the big market indexes, fell 33.8 percent in 2008, its worst performance since 1931, during the Great Depression.
Like the Dow, broader stock indicators also advanced for the third straight session this week. The Standard & Poor's 500 index rose 28.55 points, or 3.16 percent, to 931.80, its highest close since Nov. 5. The Nasdaq composite index rose 55.18, or 3.5 percent, to 1,632.21.
For the week, the S&P 500 finished up 6.8 percent, while the Nasdaq rose 6.7 percent.
The market lived up to the hopes of many analysts that it would have a fresh start in the new year after a horrific 2008. But many traders were also waiting to see how the market fares next week; they're aware that post-holiday volume was light and therefore yesterday's trading might not be the best indicator of market sentiment.
Todd Leone, managing director at Cowen & Co., said the first full week of the new year should provide insight into investor sentiment for 2009.
"The first five days are usually very telling," Leone said. "I'm not sure we'll be up or down."
Still, the market held to its recent pattern of taking bad economic news in stride. Components of the manufacturing index hit historic lows. New orders fell to their lowest level on records going back to 1948. Prices fell as the number of respondents saying they had paid more in December than in November sank to its lowest monthly reading since 1949.
A reading below 50 for the overall manufacturing index indicates contraction. The index, based on a survey of the institute's members, has fallen steadily for the past five months as the economy deteriorated.
December's reading is the lowest since June 1980, when the economy was near the end of a six-month recession.
If December's rate of manufacturing activity were to persist for 2009, the nation's gross domestic product would show a 2.7 percent contraction, said Norbert Ore, chairman of the group's business survey committee. GDP, the broadest measure of economic activity, decreased at an annual rate of 0.5 percent in the third quarter of 2008, according to the Bureau of Economic Analysis.
Only three recessions in the history of the index have showed weaker manufacturing readings, said John Ryding, of RDQ Economics. Those recessions were in 1948 to 1949, 1973 to 1975 and 1980.
The U.S. weakness is part of a worldwide slowdown. China's manufacturing sector, which accounts for 43 percent of its economy, contracted for a fifth straight month in December. Singapore said its economy shrank in the fourth quarter, and South Korea said its exports fell 17.4 percent in December. With European manufacturing indexes also dropping, "the case for a massive global fiscal stimulus continues to grow," Ryding said.
As the economy sputters through a recession that began in December 2007, no industry is proving resistant. No sector reported overall growth in December. Also, none reported growth in new orders, production, employment or prices, as businesses from tobacco to coal products to foodmakers saw declines.