Manufacturing in the US shrank less than economists forecast in January as the drop in new orders moderated for the first time in five months.
The Institute for Supply Management’s (ISM) factory index rose to 35.6 in January from 32.9 in the prior month, the Tempe, Arizona-based group said. Readings less than 50 signal a contraction and the index has been below that level since February 2008.
Manufacturing is likely to keep contracting as companies from General Motors Corp to Caterpillar Inc cut output and shed workers. President Barack Obama last week highlighted the deteriorating economy to push for Congress to enact his recovery plan to save jobs and boost spending.
“The numbers are still terribly weak,” said James O’Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. “Manufacturing is still contracting rapidly. The economy is still contracting and the first quarter may well be as bad as the fourth.”
Stocks trimmed earlier losses following the report. The Standard & Poor’s 500 index was down 0.4 per cent at 822.65 at 10:40 am in New York. Treasury securities rose, sending the yield on the benchmark 10-year note to 2.82 per cent compared with 2.84 per cent late in the day on January 30.
The median estimate of 70 economists surveyed by Bloomberg News was for an ISM reading of 32.5. Forecasts ranged from 30 to 36.
The ISM’s gauge of new orders rose to 33.2 from 23.1 the prior month, when it reached its lowest level since records began in 1948. ISM’s export orders gauge increased to 37.5 from 35.5.
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The gauge of inventories fell to 37.5, the lowest since July 2001, from 39.6.
The group’s employment index was unchanged at 29.9 in January. The economy lost 2.6 million jobs last year, and economists forecast job losses to continue as the recession heads into its second year.
“Manufacturing has a long way to go toward recovery,” Norbert Ore, chairman of the ISM factory survey, said in a conference call. Companies are in a “very strong liquidation mode” regarding the inventory gauge.
The world’s largest economy may contract at a 5.5 per cent annual pace this quarter after declining at a 3.8 per cent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York. Last quarter’s drop was the biggest since 1982.
Consumer spending is likely to keep sliding through the first six months of this year after dropping in the last half of 2008, according to economists.
Purchases have not contracted for four consecutive quarters since records began in 1947.
The gauge of prices paid rose for the first time since June, to 29 from 18 in December, when it reached its lowest level since 1949 as oil and other commodities plunged. Economists had projected that the measure, which averaged 66 in 2008, would stay unchanged at 18.
“The recession is deepening and the urgency of our economic crisis is growing,” Obama said January 30 as he announced a task force to boost the middle class that will be led by Vice-President Joe Biden.
Automakers have led the downturn in manufacturing as US sales in December fell 36 per cent from a year earlier. General Motors on Jan. 15 cut its estimate for 2009 US industrywide auto sales to 10.5 million units, a 27-year low.
“Industry sales are at depression levels,” Michael Jackson, chief executive officer of AutoNation Inc, said in an interview with Bloomberg Television on January 21. “It’s going to take extraordinary measures to get sales moving again.”
The factory slump has spread well beyond autos as demand from abroad also weakens. The US, Japan and the euro region are simultaneously in a recession for the first time in the postwar era. The International Monetary Fund last week projected global growth this year at 0.5 per cent and said losses from the credit crisis will total $2.2 trillion.
With orders dropping, Boeing Co said it plans to cut 10,000 jobs, or about 6 per cent of its workforce, after a strike, programme delays and the global recession contributed to a fourth- quarter loss.
“We can and must prepare for the continued market uncertainty,” Chief Executive Officer Jim McNerney said last week on a conference call.