Manufacturing index drops to 28-year low
Signs that the economy could turn even weaker in 2009 grew Friday, as an index of December manufacturing activity sank to its lowest point in 28 years. Every corner of the sector was down, including bakeries, cigarette makers and aluminum smelters.
The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index fell to 32.4 in December, a greater-than-expected decline from November’s reading of 36.2. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5.
Components of the index hit historic lows. New orders fell to their lowest level on records going back to 1948. Prices fell as the number of respondents saying they had paid more in December than in November sank to its lowest monthly reading since 1949.
A reading for the overall index above 50 signals growth; a reading below 50 indicates contraction. The index, based on a survey of the institute’s members, has fallen steadily for the last five months as the economy has deteriorated.
December’s reading is the lowest since June 1980, when the economy was near the end of a six-month recession.
If December’s rate of manufacturing activity were to persist for 2009, the nation’s gross domestic product would show a 2.7% contraction, said Norbert Ore, chairman of the group’s business survey committee. Gross domestic product, the broadest measure of economic activity, decreased at an annual rate of 0.5% in the third quarter of 2008, according to the Bureau of Economic Analysis.
Only three recessions in the history of the index have showed weaker manufacturing readings, said John Ryding of RDQ Economics. Those recessions were in 1948 to 1949, 1973 to 1975 and 1980.
With European manufacturing indexes also dropping, “the case for a massive global fiscal stimulus continues to grow,” Ryding said.
As the economy sputters through a recession that began in December 2007, no industry is proving resistant. No sector reported overall growth in December. Also, none reported growth in new orders, production, employment or prices.
Declining prices, coming after the summer’s soaring market for commodities, have sent manufacturers -- especially in chemicals and metals -- reeling.
Century Aluminum Co. of Monterey, Calif., last month cut production at a West Virginia plant and said that it might have to cease production at the plant entirely unless it cuts costs and prices stabilize. The Netherlands’ LyondellBasell Industries, the third-largest independent chemical company in the world, said Wednesday that it might consider a Chapter 11 bankruptcy filing.
The summer’s commodity bubble was devastating for many food processors. Pilgrim’s Pride Corp., the nation’s largest chicken producer, filed for Chapter 11 bankruptcy protection Dec. 1.
With the overall unemployment rate at 6.7% in November, the highest in 15 years, manufacturing continues to be one of the hardest-hit sectors. The sector lost 85,000 jobs between October and November, according to the most recent data from the Bureau of Labor Statistics. More losses are expected in coming months as demand continues to be weak.
The purchasing managers’ employment index showed its lowest reading since 1982 as manufacturers across industries continue to cut jobs.
Western Digital Corp., which makes computer hard drives, said in December that it planned to cut 2,500 jobs. The drug maker Bristol-Myers Squibb Co. said in December that it would cut 800 jobs by the end of 2008.
Automotive supplier Visteon Corp. said Friday that it would shift more than 2,000 workers to a four-day week and cut their pay by 20% as auto sales continue to founder. General Motors Corp. on Wednesday received the first tranche of $9.4 billion in low-cost loans from the U.S. Treasury, part of a package designed to keep ailing automakers in business.
