U.S. Manufacturing Drops

Feb. 1, 2007
Weak figures surprised Wall Street.

U.S. manufacturing activity contracted in January despite signs of stronger growth in the overall economy, the Institute of Supply Management said Feb. 1.The ISM index of national industrial activity fell to 49.3% from 51.4% in December. The weaker figure surprised Wall Street analysts expecting, on average, a rise to 51.4%.

Any reading under 50 indicates a contraction, so the report suggests the industrial economy is sputtering. The ISM index, also known as the purchasing managers index (PMI), was in negative territory in November before rebounding in December.

"The weak ISM report for January indicates that the inventory adjustment in the manufacturing sector has yet to fully run its course and that the production slump which began in the latter part of the third quarter of 2006 will continue into the new year," said Cliff Waldman, economist for the Manufacturers Alliance/MAPI. "The largest contributor to the January weakness was the sharp acceleration of the inventory drawdown in manufacturing, most likely in autos and in industries that are directly impacted by auto and housing weakness.

"New orders were positive in January although the continued contraction in the backlog of orders remains a concern for the production outlook," he added. "Solid export demand and a likely rebound in capital spending from the fourth quarter contraction should allow for continued manufacturing growth during 2007 but at a considerably slower pace than that of 2006."

The sub-indexes in the survey were mostly lower. The production index was 49.6% from 52.4% a month earlier and new orders dropped to 50.3% from 51%.

Inventories saw their sharpest drop since February 2002, pulling this index down to 39.9% from 48.5%. The employment index was nearly steady at 49.5% from 49.4% , suggesting slight declines in employment. The prices paid index -- a measure of inflation for companies -- rose to 53% from 47.5% a month earlier.

Souces: Agence France-Presse, IndustryWeek Staff

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