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Manufacturing and Auto Sales Declines Indicate Economy Easing

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TIMES STAFF WRITER

Stronger evidence of the U.S. economy’s slowdown emerged Friday as the nation’s major auto makers posted sales declines for November and a survey of purchasing executives showed that manufacturing activity fell for the fourth straight month.

DaimlerChrysler Corp., also said it plans to idle seven of its 12 North American assembly plants at various times this month because of bulging stockpiles of unsold cars and trucks.

The reports add to other recent data covering orders for durable goods and retail sales that portray an easing of economic growth, which was the goal of the Federal Reserve Board and its chairman, Alan Greenspan. The central bank has hiked market interest rates six times since mid-1999 in a bid to preclude the economy from overheating and sending inflation sharply higher.

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But as evidence of the economy’s downturn mounts, the pivotal question--especially for the nation’s work force and investors--is whether the decline will be the “soft landing” that the Fed hoped to engineer or a more severe drop that eventually could lead to recession.

It’s a tough question because “these slowdowns don’t usually occur as smoothly and as calmly as people anticipate,” said Bruce Kasman, head of U.S. economic research at J.P. Morgan Securities.

Contrary signals also cloud the picture. U.S. construction spending rose in October to its second-highest level on record, spurred by gains in multifamily housing and commercial buildings, government figures showed Friday. Spending increased 0.9% during the month to an $825-billion annual rate after gaining 1.9% in September, the Commerce Department said. While outlays on single-family housing declined for a sixth straight month, the increase for all construction was larger than the 0.4% analysts had expected. That suggests the slowdown being felt in manufacturing and other parts of the economy has left builders unscathed.

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For now, the auto sales and manufacturing reports Friday “are a confirmation that we’re on track” for the inflation-adjusted gross domestic product--the main measure of the economy--to grow around 2.5% in 2001, which roughly equals its growth this summer, Kasman said. But that’s down sharply from the torrid 5.5% to 7% annual growth rates seen late last year and early this year.

Also, economists at the investment firm Goldman, Sachs & Co. on Friday slashed their estimate for growth in the current quarter to a 2.7% annual rate from 3.8%. The firm, citing a sharp rise in claims for jobless benefits and the sluggish performance in the manufacturing sector, said the economy is decelerating more quickly than it had expected.

Gary Thayer, chief economist at the brokerage firm A.G. Edwards & Co. in St. Louis, said Friday’s reports further signaled that the economic slowdown is mostly centered in the manufacturing sector, where orders and production are slowing in response to the rise in interest rates and higher energy prices.

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Retail-sales growth also has tapered off, but “consumers are still feeling good about the present situation,” Thayer said. “Their job situation is still looking good . . . and that tends to support their outlook. But they’re a little less optimistic about the future” judging by recent consumer surveys, he said.

They’re also buying fewer cars and trucks. The biggest U.S. auto maker, General Motors Corp., said its November vehicle sales fell 8% from a year earlier, while Ford Motor Co. reported a 7% sales drop and DaimlerChrysler said sales fell 5%.

Greg Salchow, an auto analyst for the investment firm Raymond James & Associates in Detroit, said the declines were worse than he had forecast, indicating that car demand slowed noticeably in the last two weeks.

Ford also said its fourth-quarter profit would trail Wall Street’s expectations because it’s cutting production to 1.07 million vehicles in the quarter from the 1.11 million it had estimated. Ford expects to earn about 75 cents per diluted share, compared with analysts’ consensus estimate of 85 cents as surveyed by First Call/Thomson Financial.

Ford is trimming production rather than relying on rebates and other incentives “to prop up sales of unsold vehicles, and I think that’s appropriate,” Salchow said. “It costs less in the long run to take units out of production than to crank out incentives.”

DaimlerChrysler--which is also struggling with internal problems, including lackluster sales at its Chrysler division--said it plans to idle two of its North American plants next week, one plant the following week and as many as five plants the week of Dec. 18. One of those plants, in St. Louis, would be closed twice.

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“The combination of a softening market and an excess of inventory requires immediate action,” Chrysler Chief Executive Dieter Zetsche said in a statement.

Overall U.S. manufacturing also declined again in November, and perhaps even more ominously, new orders for manufactured goods fell for the fifth straight month, according to the National Assn. of Purchasing Management.

The group’s manufacturing index was 47.7% in November, down from 48.3% in October and below the 50% level that typically indicates an expanding economy.

All of which is fueling debate over whether the Federal Reserve’s policy-making committee, which meets again Dec. 19, will be so concerned about the economic slowdown that it cuts interest rates. Many economists expect the Fed to make no changes this month, but to seriously consider lowering rates early next year if the economy keeps deteriorating.

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Purchasing Managers Index

November: 47.7 Source: National Assn. of Purchasing Management

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