Reports Signal the Possibility of a Quick Recovery

U.S. manufacturing activity declined in November but at a slower pace than in the prior month while consumer spending registered the biggest one-month rise ever in October, according to reports Monday that raised hopes for a quick economic recovery.

The National Assn. of Purchasing Management’s main index rose to 44.5 in November from 39.8 in October, the lowest level in almost 11 years. The number topped economists’ expectations for a 47.1 reading. But it was the 16th consecutive month it was below 50, which indicates activity is contracting.

In a separate report, the government said consumer spending soared by a record 2.9% in November after a 1.7% fall in October. Wall Street had expected a 2.4% rise. The strength in spending was due mainly to auto sales boosted by widespread discounting and 0% financing from car makers.

A third report showed construction spending rose 1.9% in October after five monthly declines. It was the largest rise since January. Economists had expected a 0.3% drop.

“Both NAPM and construction expenditures suggest the economy may be a bit stronger than the consensus was expecting,” said Drew Matus, financial economist at Lehman Bros. in New York.

Manufacturing, which accounts for about a sixth of the economy, has been one of the hardest-hit sectors during a slowdown that began last year and deepened this year, especially after the Sept. 11 attacks on the World Trade Center and the Pentagon.

Norbert Ore, chair of the NAPM Business Survey Committee, said the manufacturing sector could return to growth during the April-June quarter of 2002. But he cautioned that it was too soon to say a recovery was imminent.

When the main NAPM index remains above 42.7 for a time, Ore said, that generally indicates an expansion of the overall economy. The November reading indicates the overall economy is growing while manufacturing continues to contract, he said.

A 10.5-point increase in the new orders index, a barometer of future strength in manufacturing, was the sharpest one-month rise in 18 years, NAPM said. The index jumped to 48.8 from 38.3 in October, fueling hopes for a recovery.

The production index rose to 47.1 from 40.9, another indication of building strength.

The economic slowdown and falling energy prices pushed the prices index down to a 52-year low of 31.6, compared with 32.5 in October. November was the ninth straight month that manufacturers saw their input prices falling.

The employment index rose slightly, to 35.7 from 35.1. But economists expect another substantial drop in non-farm payrolls for November when the government issues its monthly employment report Friday. The consensus forecast is for a decline of 189,000 following a massive drop of 415,000 in October.

Analysts said the surge in consumer spending in October, despite incomes that were flat for a second month, was impressive.