Manufacturing Declines a 2nd Straight Month

U.S. manufacturing declined in September for the second straight month as orders slumped to a two-year low, a sign higher borrowing and energy costs caused factories to cut back.

The National Assn. of Purchasing Management’s factory index was 49.9 in September, compared with 49.5 a month earlier. A reading below 50 signals a contraction, and manufacturing had declined in August for the first time since January 1999. An index measuring new orders stayed below 50 for a third straight month.

Monday’s report underscores why analysts expect Federal Reserve policymakers to leave interest rates unchanged at their meeting today. “The Fed should be happy with this further evidence of a coasting manufacturing sector and moderate” consumer demand, said Christopher Low, chief economist at First Tennessee Capital Markets in New York.

Spending on construction of single-family houses fell 0.5% in August, the fifth consecutive decrease, the Commerce Department reported separately. While overall construction spending rose 1.4%, it was the first increase since March. The rise was paced by a 3.3% gain in public works spending that also was the first since March.

The purchasing managers’ new-orders index fell to 49.1 in September--the lowest since 47.8 in November 1998--from 49.7 in August, the group said. In addition to the Fed’s raising the overnight bank lending rate during the last year, companies also blamed the 14% decline of the euro against the dollar for making their products less competitive overseas.

Alcoa Inc. the world’s biggest aluminum maker, says its earnings for the third quarter, to be reported this week, will be lower than in the previous quarter because of higher gas and fuel oil costs as well as slower sales to the transportation and construction industries.

Caterpillar Inc., the largest maker of construction and earth- moving equipment, also warned last week that its third-quarter earnings would fall below forecasts.

Manufacturers were also paring down inventories and clearing their backlogs of orders, the purchasing management report showed. The production index rose to 52.1 from 48.7. Still, “with backlogs disappearing, if orders don’t pick up soon, production could easily falter again,” said Joel L. Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa.