U.S. Manufacturing Declines Hint at Stumbling Economy

U.S. manufacturing contracted in March for the first time in five months as orders and production declined, an industry survey showed Tuesday, suggesting the economy stumbled at the end of the first quarter.

The Institute for Supply Management’s factory index last month fell to 46.2, the lowest since November 2001, about the time most economists say the economy started to emerge from recession. In February, the index was 50.5. A reading of less than 50 means business is contracting.

Factories have pulled back as consumer spending, which accounts for more than two-thirds of the economy, stalled in the months leading up to the war in Iraq and confidence dropped to a nine-year low. The index fell 9 points from January through March, the biggest quarterly decrease since the first three months of 1984.

The decline “is worrying and raises significant questions about the near-term strength of the economy,” said John Ryding, chief economist at Bear Stearns Cos. in New York.

Separately, the Commerce Department said construction spending dropped in February for the first time in six months as snowstorms in the Northeast and Midwest delayed building. The 0.2% decrease followed a 2% increase the previous month.

There also were signs of consumer fatigue, with the National Retail Federation predicting sales this year will grow at their slowest pace in a decade. The trade group slashed its 2003 forecast for retail sales growth to just 3.8% from the 5.6% originally expected.

The sober forecast from the retail industry’s trade group was underscored Tuesday by two separate reports that showed sales at chain stores faltered last week, indicating the war already is undercutting spending patterns.

A report by Instinet Research showed sales last week fell 2.8%, partly because consumers stayed home to watch war news. Sales dropped 1.5% for March compared with a year ago.

In another report, Bank of Tokyo-Mitsubishi and UBS Warburg showed retail sales for the week inched ahead by just 0.5% compared with the year before. But sales posted a 1.4% decline compared with the previous week, the biggest drop recorded since December.

In manufacturing, the purchasing managers’ new orders index dropped to 46.2 from 52.3 in February.

The production index, a gauge of work being performed, fell to 46.3 from 55.4.