THE ECONOMY : Manufacturing Index Falls for 2nd Month in a Row : Economy: The National Assn. of Purchasing Management data may mean the recovery is sputtering.

The nation’s manufacturing sector slowed to a virtual standstill in November as an economic recovery appeared to run out of steam, a group of purchasing executives said Monday.

The National Assn. of Purchasing Management said its monthly index fell to 50.1% in November from 53.5% in October. A reading above 50% shows that the manufacturing sector is expanding, while a reading below that level indicates that the sector is declining.

Separately, construction spending, boosted by government outlays, rose 1.0% in October, the government said. It was the fourth consecutive monthly gain and the longest stretch of increases in five years.

The latest data from the purchasing managers may dispel notions of health in the manufacturing sector. It had been one of the few bright spots in the economy this year, rallying after the victory in the Gulf War led to a burst of euphoria. But now the sector appears to be sliding back into recession, economists said.

“The manufacturing side of the economy is fading very rapidly as one of the sources of growth,” said Allen Sinai, chief economist for Boston & Co. He predicted that the index would slip below 50% by the end of the year.

The November reading represented the second straight decline in the index and was the lowest since May, when it stood at 45.4%. Economists and analysts had on average expected the index to come in at 52.1%.

Purchasing managers said the manufacturing economy was essentially flat in November, while the overall economy continued to grow slowly.

“The economic recovery grew perceptively weaker in November,” said Robert Bretz, chairman of the group’s Business Survey Committee. “Although the overall economy continued with unpretentious growth, the manufacturing sector of the economy virtually stopped growing.”

The purchasing managers’ index, based on a survey of 300 industrial companies, had risen steadily from a recessionary low of 37.4 in January to a peak of 55.0 in September. Since then it has fallen back as the overall economy has faltered.

The purchasing managers said employment in manufacturing fell for the 34th consecutive month.

Although manufacturing accounts for only about 18% of economy, strength in the sector was one of the few things bolstering consumer confidence, which now has fallen to recessionary levels.

“Manufacturing was about the only game going, and now we don’t have that game,” said Donald Ratajczak, director of the economic forecasting center at Georgia State University.

Sinai said he believed that the overall economy would shrink in the current quarter and probably in the first quarter of 1992, meeting the criteria for a “double-dip” recession. For all of 1991, he said, gross national product would probably be up by a mere 0.5% after adjusting for inflation.

Virtually every component of the purchasing managers’ report turned downward in November.

Production rose for the sixth consecutive month, but the rate of growth fell sharply from the three prior months. The association’s production index dropped to 52.7% from 60.3% in October, reaching the lowest level since May.

Construction Spending Rises . . .

Billions of dollars. seasonally adjusted Oct., ‘91: 411.5 Sept., ‘91: 407.5 Oct., ‘90: 434.6

Source: Commerce Department

. . . Manufacturing is Stagnant

Purchasing managers’ index The purchasing managers’ index tracks overall business activity at 300 industrial companies. Nov., 1990: 41.6% Nov., 1991: 50.1%

Source: National Assn. of Purchasing Management