Manufacturing May Be Slowing,Fueling Forecasts for Fed Rate Cuts
Fresh data suggest the manufacturing sector is beginning to contract, giving new ammunition to those who view the Federal Reserve's upbeat economic outlook as overly optimistic.
The Institute for Supply Management, an Arizona-based group of corporate purchasing managers, Friday said its index of manufacturing activity slid to 49.5 in November from 51.2 in October. Readings below 50 indicate contraction, and the decline ended a 41-month expansion among manufacturers.
November was a defining month," said Norbert Ore, who oversees the survey and also serves as procurement director for paper manufacturer "Since April we've seen a pretty consistent decline in the growth of manufacturing. Now we've moved into a no-growth position."
If sustained, it could spell more trouble for the economy at a time when the housing market is in a major slump. The critical question is how soon these impediments to economic growth -- brought on in large part by excessive inventories and scaled-back production of cars and houses -- can be reversed.
There is much debate among economists on this score, and a big divide between bond-market investors and Fed Chairman Ben Bernanke over the next move on interest rates. The bond market is pessimistic about the prospects for near-term economic growth and views inflation as contained. It expects the Fed to lower interest rates early next year in an effort to reignite the economy. Mr. Bernanke has struck a more sanguine note, saying the weakness is primarily confined to the housing market. In a speech earlier this week, he also reiterated the need to stand guard against inflation and suggested that rate cuts are unlikely in the months ahead.
Friday's data strengthened the gloomy outlook in the bond market and among other pessimists. Bond prices continued to rally, pushing the yield on the benchmark 10-year Treasury note down to 4.437%. Stocks fell on the news, as did the dollar.
Futures-market traders, mulling the prospect of a manufacturing recession and slower economic growth, increased the probability that the Fed would cut interest rates by April to roughly 74% from 51% earlier in the day. And many economists lowered their outlook for economic growth this quarter after the ISM report's release.
Many economists still argue the economy will rebound by mid-2007, as excess inventories of cars and houses ease. They say a competitive labor market and low unemployment rate are helping to lift incomes and provide support for the all-important factor of consumer spending. "The fundamentals are still not bad," said Daniel Jester, an economist with Moody's Economy.com.
Fisher Barton Inc., a Wisconsin-based manufacturer of blades for agricultural and lawn and garden equipment, sees good and bad. The company has seen revenue grow 10% so far this year compared with last year, but expects sales to be flat next year.
Demand "has really gone south," due to the weakening housing market and the broader slowdown in economic growth, said company President Dick Wilkey. "It's possible we might have to cut our staff, but it's too early to tell."
Another worrisome sign for the economy surfaced Friday in a Commerce Department report on construction spending. According to the report, nonresidential construction fell in October for the second consecutive month, partially affected by a 3.1% drop in private manufacturing construction. Until recently, a surge in commercial construction had helped offset some of the pain caused by the downturn in residential construction.
Residential construction retreated for the seventh consecutive month. Overall, construction spending fell 1% in October from September, the biggest drop in five years.
[ 本帖最后由 Trend 于 2007-1-10 18:32 编辑 ] |
发表于 2006-12-3 03:07:52
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