Manufacturing Growth Slowdown Seen
Manufacturing growth slowed in the final month of 1997, an industry group said Friday in a closely watched report that provided signs the Asian economic crisis is taking a toll on U.S. exports.
The National Assn. of Purchasing Management’s index declined to 52.5 last month--the lowest reading since January 1997--from 54.4 in November. Analysts expected a December reading of 54.0. A reading of 50 or more in the NAPM index means manufacturing is expanding, while a reading below 50 signals a contraction.
“Clearly, Asia is at work. Manufacturing has lost some momentum,” said William Sullivan, an economist at Dean Witter Securities in New York. Snarled traffic on the Union Pacific, the nation’s largest railroad, also contributed to the slowdown, analysts said.
While the rate cooled off more than expected, the report still marked 19 straight months of manufacturing growth and an 80th straight month of growth for the overall economy, as measured by the industry group that represents executives who buy supplies and raw materials for industry.
Prices paid by manufacturers also grew at a slower rate, the survey found, an indicator that inflationary pressures are not overheating.
Although the report was further confirmation the economy continues noninflationary growth, the slowdown in the rate of expansion also is viewed as a warning that it will be harder for corporations to turn in the kind of earnings increases that have led to an unprecedented three straight years of gains of more than 20% by the Dow Jones industrial average.
The report also provided evidence that while exports are still growing, the rate slowed significantly in December, dropping to 50.6 from 54.2 in November, an indication that Asian economic problems will be slowing the U.S. economy, economists said.
“You see the beginnings of the impact of Asian import orders kicking in,” said Richard Hoey, an economist with the mutual fund company Dreyfus Corp.
The import index figure was the lowest since February 1996, when a blizzard on the East Coast shut down ports, curbing exports.
“This was a rather big drop,” said Jeremy Siegel, finance professor at the University of Pennsylvania’s Wharton School of Business.
As 1997 ended, manufacturers were wary about the economic outlook for the new year and concerned about “weakening in new orders, the strength in the dollar, Asian demand and railroad delays,” said Norbert Ore, chairman of the NAPM survey committee and an executive at Sonoco Products Co., a packaging producer.
Ore said Asia’s turmoil was also reflected in the NAPM’s imports index, which rose to 57.3 last month from 52.4 in November. As Asian countries’ currencies lose value against the dollar, their products become cheaper for U.S. importers.
Prices increased for a sixth consecutive month but the association’s price index in December declined to 50.3 from 51.9 in November, as 14% of those interviewed reported paying higher prices, 15% paid lower prices and 71% said prices were unchanged from November.
The purchasing managers’ report is widely followed by economists, including Federal Reserve Board Chairman Alan Greenspan, because it is usually the first indicator of how the economy fared in the previous month.
The report also said manufacturing employment failed to grow in December for the first time after nine straight months of growth, although the furniture, paper, chemicals, printing and publishing, and transportation and equipment industries saw growth.
Problems continue to plague the Union Pacific Railroad. The unit of Union Pacific Corp. this week reported delays lengthened for a second straight week as crew shortages thwarted efforts to resolve a six-month freight logjam.
Delays on the line are the worst in more than 25 years.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Purchasing Managers Index
The index tracks overall business activity of more than 300 industrial companies. A reading over 50% indicates that manufacturing is growing.
Dec. 1997: 52.5%
Source: National Assn. of Purchasing Management
