Tuesday, November 04, 2008

Manufacturing sector activity drops to lowest level in 26 years.

Manufacturing sector activity drops to lowest level in 26 years.

On the front page of its Business section, the Washington Post (11/4, D1, Rosenwald) reports in its Economy Watch column, "Activity in the nation's manufacturing sector, beleaguered by tightfisted consumers and the global credit crisis, declined last month to the lowest level in more than two decades, offering economists more evidence that the country is entering a deep recession. The Institute for Supply Management's index of conditions in the manufacturing sector" indicates that "export orders have collapsed, and businesses appear to be struggling to sell inventories of items ranging from appliances to tobacco products." The index fell to 38.9, down from 43.5 in September, which "is a clear indication to economists that the manufacturing sector is shrinking markedly -- in fact, any figure below 50 indicates a contraction." Additionally, "the customers' inventories index increased from 53.5 to 55, a sign that manufacturers think their customers have excess goods."

        USA Today (11/4, Kirchhoff, Hagenbaugh) adds, "In a second report, the Federal Reserve said about 85 percent of domestic banks had tightened standards for business loans to large and midsize firms in the past three months, up from 60 percent that reported doing so in a July survey." Further, "about 75 percent of lenders toughened criteria for lending to small firms during the most recent quarter, while about 85 percent set higher standards for commercial real estate loans." A decline in construction activity in September" was attributed to tighter credit. "The Census Bureau said construction spending declined 0.3 percent from August and 6.6 percent from a year ago. Housing continued to tumble," and while, "non-residential building eked out a slight gain, that is expected to change."

        Bloomberg News (11/4, Willis) notes, "Today's report may add to pressure for further interest-rate cuts and an additional federal package of tax and spending measures." John Lonski, chief economist at the Moody's Capital Markets Group, said, "Manufacturing is definitely in a deep recession right now." He added, "We're definitely going to have more rate cuts." In addition, "job losses accelerated," as "the employment index decreased to 34.6 from 41.8 in September. Employers have cut more than three-quarters of a million jobs so far this year, and economists predict the Labor Department in four days will report that the unemployment rate climbed to 6.3 percent in October, matching the highest level since 1994."

        The AP (11/4, Read) reports, "Treasury prices rose modestly in quiet trading Monday after a bleaker-than-expected reading on the manufacturing sector, but investors avoided making large bets ahead of Tuesday's presidential election. Meanwhile, key interbank lending rates extended their declines, a sign of further easing in the credit markets." According to the AP, "normally, data pointing to severe economic weakness would give Treasurys a big boost." While "Treasurys did rise Monday," the gains were not as large "as one might expect." Overall, "investors have been seeking short-term Treasury bills more than longer-term debt," avoiding the latter "in anticipation of huge amounts of supply coming to market as the Treasury attempts to finance its rescue efforts."