Manufacturing in the U.S. probably shrank in January at the fastest pace in 28 years following a collapse in sales that caused inventories to swell at the end of 2008, economists said before reports today.
The Institute for Supply Management’s factory index fell to 32.5 last month, the lowest level since June 1980, from 32.9 the prior month, according to the median estimate of economists surveyed by Bloomberg News. Readings less than 50 signal contraction. Other reports may show consumer and construction spending dropped in December.
Manufacturers such as General Motors Corp. and Caterpillar Inc. are cutting output and firing workers as the biggest global economic slump in the postwar era causes unsold goods to pile up. President Barack Obama last week highlighted the deteriorating economy in pushing for Congress to enact his recovery plan to save jobs and boost spending.
“The economy is down for the count right now, and there is nothing imminent in terms of a rebound,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “Demand cratered so quickly in the fourth quarter, both external and domestic, that a lot of companies couldn’t get production down fast enough.”
The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. A measure of prices paid may be unchanged at December’s six-decade low, according to the survey.
Spending Slump
A Commerce Department report at 8:30 a.m. may show that consumer spending fell 0.9 percent in December, a sixth consecutive drop, according to economists surveyed. That report may also show incomes fell for a second month as the job market deteriorated.
There is no relief in sight as the recession heads into a second year. The world’s largest economy may contract at a 5.5 percent annual pace this quarter after declining at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York free credit score. Last quarter’s drop was the biggest since 1982.
Consumer spending is likely to keep contracting through the first six months of this year after sliding in the last half of 2008, according to economists. Purchases have not contracted for four consecutive quarters since records began in 1947.
Obama Task Force
“The recession is deepening and the urgency of our economic crisis is growing,” Obama said Jan. 30 as he announced a task force to boost the middle class that will be led by Vice President Joe Biden.
Automakers have led the downturn in manufacturing as U.S. sales in December fell 36 percent from a year earlier. General Motors on Jan. 15 cut its estimate for 2009 U.S. industrywide auto sales to 10.5 million units, a 27-year low.
“Industry sales are at depression levels,” Michael Jackson, chief executive officer of AutoNation Inc., said in an interview with Bloomberg Television on Jan. 21. “It’s going to take extraordinary measures to get sales moving again.”
The factory slump has spread well beyond autos as demand from abroad also weakens. The U.S., Japan and the euro region are simultaneously in a recession for the first time in the postwar era. The International Monetary Fund last week projected global growth this year at 0.5 percent and said losses from the credit crisis will total $2.2 trillion.
With demand falling globally, Caterpillar Inc., the world’s largest maker of bulldozers and excavators, said last week it’s cutting 20,000 jobs and that sales will trail analysts’ estimates.
Boeing Co. said it plans to cut 10,000 jobs, or about 6 percent of its workforce, after a strike, program delays and the global recession contributed to a fourth-quarter loss.
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