Manufacturing growth slows as housing slumps
Manufacturing expanded at the slowest pace in more than three years in October, and construction spending declined as housing continued to suffer through its longest stretch of weakness since 1995.
Two reports released Wednesday depicted an economy beginning to feel the effect of the sharp slump in the once-booming housing sector.
The Institute for Supply Management said its gauge of manufacturing activity fell to 51.2 in October. That compares with 52.9 in September and is the lowest since June 2003. October’s decline reflected weakness at companies that supply the beleaguered auto and housing industries.
The Commerce Department said spending on construction projects dropped by 0.3% to a seasonally adjusted annual rate of $1.2 trillion in September. Housing activity fell for a sixth straight month, the longest stretch of declines since 1995.
“It now seems clear that the U.S. factory sector is straining under the weight of declining auto production and a deteriorating housing market,” said Bart Melek, an economist at BMO Capital Markets.
Analysts said manufacturing, which had strong growth in recent years after the 2001 recession, probably would slow sharply in the coming months, reflecting the overall sluggish economy.
“The manufacturing malaise is gathering steam and the troubles in the vehicle sector point to further problems ahead,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Analysts said the 1.1% drop in home building in September, the sixth consecutive decline of 1% or more, showed how quickly builders were scaling back production in the face of slumping demand.
“Housing is still a huge drag and will remain so for the foreseeable future,” said Ian Shepherdson, chief economist at High Frequency Economics.
A separate report Wednesday on pending home sales, from the National Assn. of Realtors, indicated further weakness ahead. The group’s index dropped by 1.1% in September and is down by 13.6% from a year earlier. A home sale is pending when the contract has been signed but the transaction has not closed.
The government reported last week that the overall economy had a lackluster growth rate of 1.6% in the July-September quarter, the slowest in more than three years. The major weakness came from a 17.4% rate of decline in housing construction, which shaved 1.12 percentage points off overall growth.
Some economists have worried that the sharp drop in housing could rattle consumer confidence and push the U.S. into a recession. Those fears have lessened recently as gasoline prices have retreated from above $3 a gallon, leaving consumers with more money to spend elsewhere.
The 51.2 reading for the manufacturing index was lower than the 53 mark economists had expected. It reflected weakness in new orders and production. But a slide in the index of prices paid was seen as good news, “signaling some relief for buyers for the first time in 15 months,” said Norbert J. Ore, chairman of the institute’s business survey committee.
