News > Economy
U.S. manufacturing slips
October 1, 2001: 1:22 p.m. ET

But industry index stronger than expected in wake of Sept. 11 attacks
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NEW YORK (CNNfn) - U.S. manufacturing slowed in September, the nation's purchasing managers said Monday, and while the sector was stronger than Wall Street expected, it may not yet be feeling the full impact of the Sept. 11 terrorist attacks.

The National Association of Purchasing Management (NAPM) said its Purchasing Managers Index dipped to 47.0 from 47.9 in August. Wall Street economists had expected a much worse reading of 45.0, according to

Though still below 50 meaning the manufacturing sector shrank for the 14th straight month the index is significantly better than the 10-year low of 41.2 set in January.

"The overall picture is one of continued decline in manufacturing activity during the month of September," said NAPM chief economist Norbert Ore. "The manufacturing sector is in its 14th month of decline. A major sign of encouragement is that inventory liquidation appears to be slowing, as both manufacturers and their customers are bringing inventory levels under control."

The group surveys more than 400 buyers at major manufacturers. Ore said some respondents said it was too early to tell the full effects of the Sept. 11 attacks on New York and Washington that killed thousands of people, destroyed the World Trade Center and damaged the Pentagon.

More ominously, the University of Michigan revised its monthly report of consumer sentiment to reflect survey responses taken after the attacks and found confidence was significantly damaged, according to a Reuters report.

The study found confidence surged right after the attack but then plunged, with the university's index jumping 4.7 points the first week after the attacks and then falling 16.1 points the next week, Reuters said. September's reading came in at 81.8, a far cry from 91.5 in August and 106.8 a year ago, according to the report.

Meanwhile, the Commerce Department said consumer spending which fuels about two-thirds of the nation's economy rose 0.2 percent in August after a 0.2 percent gain in July. Analysts surveyed by had forecast a 0.3 percent rise for August.

U.S. income was unchanged in August after rising 0.5 percent in July, the department said. Analysts polled by expected a 0.3-percent gain.

On Wall Street, stocks fell at mid-session while Treasury bond prices were mostly higher.

In a bid to keep consumers spending and avoid a recession which is widely expected after the attacks the Federal Reserve has cut interest rates eight times this year. Policy makers are expected to cut rates again when they meet Tuesday, taking short-term rates to the lowest level in nearly 40 years.

A year-long slowdown in the U.S. economy has been felt most sharply by manufacturing. Demand for new products slowed to a crawl, forcing manufacturers to cut production while they tried to clear out their inventories of unsold goods. Still, the sector was showing signs of improvement before the attacks.

The NAPM's production index fell to 51.3 in September from 52.2 in August, the second month that the index has remained above 50 percent after eight months of decline.

Its new orders index which gives an early glimpse of future manufacturing activity, as those orders are eventually filled was also above 50 for the second straight month, following 13 consecutive months of no growth. The reading stood at 50.3 percent, representing a decline of 2.8 percentage points from 53.1 percent in August.

Ore told reporters the new orders data likely does not include the impact from the attacks, however, and most economists think the numbers will shrink as the impact of the attacks works its way through the economy.

"The Sept. 11 terrorist attacks seem to have had little impact on the factory sector so far," said Steven Wood, economist with FinancialOxygen. "However, many industries have already reported further production cuts as demand has waned. A more substantial contraction is expected next month."

Separately, the Commerce Department said spending on building fell 1.1 percent in August to a seasonally adjusted annual rate of $845.5 billion, compared with an $854.6 billion pace in July.

August's drop was much steeper than the 0.4 percent decline forecast by economists surveyed by, and was the largest fall since a 1.3 percent slump in July 2000.

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Measures of consumer sentiment were slipping even in the days before the attacks, as the protracted slowdown led to hundreds of thousands of job cuts.

"Clearly [the August spending data] confirm that consumer spending was on the weak side but still in positive territory, which I think would have confirmed a consensus view that the worst was probably past," Bill Cheney, chief economist at John Hancock Financial Advisors, told CNNfn's Before Hours program.

But the attacks changed the near-term outlook as nervous consumers and investors wait to see how the economy and the military respond to the attacks.

graphic   VIDEO  
graphicBill Cheney, chief economist with John Hancock Financial, looks at the spending and income numbers.
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"All the evidence on consumer confidence would tell us that all spending on big-ticket items is liable to plummet in the next month or two," Cheney said.

While second-quarter gross domestic product (GDP), the broadest measure of U.S. economic health, was revised upward on Friday, barely staying in positive territory, many economists expect third-quarter GDP to sink into negative territory, dragged down by a days-long shutdown of the airline industry and weak consumer and business spending.

A recession, commonly defined as two consecutive quarters of shrinking GDP, could come if the weakness continues through the fourth quarter.

But many economists think the Fed's aggressive cuts, combined with a $40 billion emergency spending package from Congress, a $15 billion bailout of the airline industry, last spring's tax cuts, and probably billions more in Congressional spending, could push the economy back into positive territory sometime next year.

"The U.S. economy is now almost certainly in recession, but a huge amount of policy stimulus should strongly boost growth by next spring or summer," said Merrill Lynch chief economist Bruce Steinberg. "A consumer rebound in the spring and a capital spending recovery by the second half of 2002 will hopefully follow." graphic

-- from staff and wire reports


Special report: Eyes on the Fed

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NAPM report

Consumer spending report coverage of America's war on terrorism

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