Manufacturing Activity Hits an Eight-Year Low

Manufacturing activity dropped in December to its lowest level in nearly eight years, as weakening domestic demand added to the global turmoil that has hindered American exports, the National Assn. of Purchasing Management said Monday.

The industry group reported that its monthly index of business activity fell to 45.1% in December, the lowest level since May 1991. The results surprised economists, who had predicted the index would rise slightly from its November level of 46.8%.

December marks the seventh consecutive month in which the index was below 50%, a sign of contraction in the industrial sector.

“Most manufacturers trade in a global marketplace, and for a lot of the rest of the world, recession is still the rule,” said Robert Barbera, chief economist at Hoenig & Co.

The private group’s report is compiled from a survey of corporate purchasing executives nationwide. It is widely followed because it is usually the first indicator of the economy’s performance for the previous month.

The report shows American manufacturers were hurt by slowing domestic demand--already seen in the largely disappointing Christmas shopping season--on top of continued troubles abroad, said David Resler, chief economist at Nomura Securities International.

“It’s got to be a matter of concern for the overall economy,” Resler said.

Exports continued to decline in December, although at a slower pace, as purchasing executives expressed concern about the steel industry in particular, the report said.

Prices dropped at a faster rate, a trend that plagued the manufacturing sector through all of 1998, and production declined at a faster clip as well.

As struggling manufacturers continued to cut jobs to save money, the sector’s employment also dropped at an accelerated rate.

Of the nine NAPM sub-indices that make up the main index, most stood at or near their lowest levels in the 68-year history of the report, said Norbert Ore, chairman of the group’s business survey committee.

The employment sub-index fell to 40.8 from 44.9, which analysts said points to a decline of 20,000 to 30,000 manufacturing jobs in December and slower consumer spending heading into 1999.

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Purchasing Managers Index

Tracks overall business activity of more than 300 industrial companies.

December: 45.1%

Source: National Assn. of Purchasing Management.