Manufacturing Slips for 6th Straight Month in January

U.S. manufacturing activity withered for a sixth straight month in January, signaling one-fifth of the economy had slipped into recession and that overall growth may have stalled, a survey showed Thursday.

The National Assn. of Purchasing Management said its January manufacturing index slid from 44.3 in December to 41.2--its lowest level since March 1991, at the tail end of the last recession. Economists had expected a 43.6 reading.

“This has confirmed the feeling that the manufacturing sector is in recession,” said Anthony Karydakis, senior financial economist at Banc One Capital Markets in Chicago.

Manufacturers have been struggling to cope with high energy costs, weakening export sales and sluggish consumer demand for big-ticket items, as well as an overhang of inventories built up when the economy was booming in the first half of 2000.

Signs of weakening consumer demand were bolstered by Commerce Department figures showing that spending on durable goods in December tumbled 1.9%. An overall modest increase in consumer spending was attributed to higher energy costs.

The suddenly reluctant consumer was the focus of the Federal Reserve’s concern Wednesday when policymakers slashed interest rates by half a point for the second time in a month.

Not all signs Thursday were bleak, however. Though auto sales for January showed a steep percentage decline from year-earlier levels, they weren’t as bad as expected and were relatively strong in historical terms. And December’s report on construction spending showed a small, but unexpected, increase due to gains in single-family home and office construction.

Separately, the Labor Department said the number of weekly claims for unemployment benefits increased to 346,000 last week from 314,000 a week earlier. But the four-week moving average of claims, considered a better barometer of labor market conditions, fell to 327,000 from the prior week’s 335,500.

NAPM Chairman Norbert Ore said the January manufacturing index correlated to an overall economic contraction of 0.6% at an annualized pace, indicating that last month the broader economy failed to grow for the first time in 117 months, or nearly 10 years.

In another ominous sign, the NAPM new-orders index, a gauge of production to come, tumbled from 42.5 in December to 37.8--its lowest since January 1991. The NAPM production index, meanwhile, plunged to its lowest point since May 1982.

“Obviously the economy is in trouble--the Fed has lowered rates dramatically--but I wouldn’t generalize from the state of the manufacturing sector that the overall economy is in the same dismal state,” said Banc One’s Karydakis.

Consumer spending rose by 0.3% pace in December, on trend, but the climb was driven largely by costlier services as Americans paid more for electricity and natural gas, the Commerce Department said.

Consumers cut back on purchases of expensive items such as new cars, backing a report earlier this week that said a fall in consumer confidence to four-year lows had reined in Americans’ appetite to buy expensive items.

The Labor Department is scheduled to issue its report on January employment today. Wall Street analysts predict the unemployment rate will rise to 4.1% from 4%.