business

By Bob Willis

Manufacturing in the U.S. contracted in February for a 13th consecutive month as factories cut production to match collapsing sales.

The Institute for Supply Management’s factory index rose to 35.8 last month from 35.6 in January. Readings less than 50 signal contraction. Another report showed consumer spending rose more than expected in January after six straight declines as Americans took advantage of post-holiday discounts.

Factories are cutting jobs and scaling back on output and investment as the housing and credit crises squeeze global demand for everything from cars to appliances. President Barack Obama last month announced a stimulus package to jolt the economy out of what may become the worst recession in seven decades and introduced a record $3.55 trillion budget designed to chart a path toward long-term growth.

“Manufacturing is struggling and certainly the indication we have right now is it will continue to struggle for months to come,” Norbert J. Ore, chairman of the ISM’s manufacturing survey said on a conference call with reporters. “Manufacturing is still operating at relatively low rates.”

The median estimate of 67 economists surveyed by Bloomberg was for an ISM reading of 33.8. Forecasts ranged from 30 to 37.

The ISM’s gauge of new orders fell to 33.1 from 33.2 the prior month. ISM’s export orders gauge held at 37.5.

Job Losses

The gauge of inventories dipped to 37 from 37.5. The group’s employment index fell to 26.1, the lowest since record-keeping began in 1948, from 29.9 in January. The recession has already cost 3.6 million job losses since December 2007 and more cuts are in the pipeline.

Earlier today, the Commerce Department said consumer spending rose 0.6 percent in January after declining for a record six consecutive months. Incomes increased by 0.4 percent.

ISM’s gauge of prices paid held at 29. Economists had projected that the measure, which averaged 66 in 2008, would rise to 33.5. A measure of goods imported by factories fell to 32, the lowest since records for that gauge began in 1989.

Consumer spending, which dropped at a 4.3 percent rate in the fourth quarter after a 3.8 percent decline in the prior three months, may slip through the first six months of this year, according to economists surveyed last month. Purchases have not shrunk for four straight quarters since records began in 1947.

Deepening Recession

The recession that began in December 2007 will probably persist at least through the first half of this year, according to economists surveyed, which would make it the longest downturn since 1933. The economy shrank at a 6.2 percent pace in the fourth quarter of last year, the biggest contraction since 1982, and business investment fell at a 21 percent rate.

In Obama’s first address to a joint session of Congress on Feb. 24, he said the staggering economy has left “confidence shaken” and the credit freeze paralyzing the banking system will need to be fixed or “our recovery will be choked off before it even begins.”

Obama signed his $787 billion stimulus into law on Feb. 17 and his administration has unveiled measures to boost housing and banks. Also, the Federal Reserve has flooded markets with cash.

Among manufacturers, carmakers have been the hardest hit. Detroit-based General Motors Corp. last week reported the second- biggest quarterly loss in its 100-year history, as Chief Executive Officer Rick Wagoner asked the Treasury for $16.6 billion more in loans to survive through 2009.

Appliance Sales

Whirlpool Corp., the world’s biggest appliance maker, said Feb. 9 that profit will probably fall for a second straight year as the recession and a plunge in home construction stifle demand. Appliance sales in the U.S. will decline 10 percent this year, Chief Executive Officer Jeffrey Fettig said on a conference call.

Companies that rely on exports are also hurting. Honeywell International Inc., the world’s largest maker of airplane-cockpit controls, last week said 2009 sales will be lower than previously projected because of slowing demand in China and India and “weakness” in commercial aerospace. New Jersey-based Honeywell has cut jobs and frozen hiring because of the global slowdown.

source : Bloomberg

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