Manufacturing contracts most since 2001 recession

Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as the credit crisis spread beyond Wall Street.
The Institute for Supply Management’s factory index dropped to 43.5, the lowest level since October 2001 and below economists’ forecasts, the Tempe, Ariz.-based group reported last week. A reading of 50 is the dividing line between expansion and contraction.
The figures show that manufacturing, which had weathered a domestic slowdown because of record exports, is now starting to buckle as expansions from Japan to Germany falter with the global financial crisis. The housing slump has already spread to autos, and other industries may follow as mounting foreclosures, tougher lending rules and rising unemployment choke off spending.
“This sharp drop is putting maybe an exclamation point behind the word ‘recession,’”said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, referring to the ISM report.
The ISM index was projected to drop to 49.5 from August’s 49.9, according to the median of 72 economists’ forecasts in a Bloomberg News survey. Estimates ranged from 48 to 51.1.
“Manufacturing could be on the brink of a collapse,” said Lindsey Piegza, a market analyst at FTN Financial in New York. “There are no orders, no jobs and there is really no incentive for businesses to invest. The credit crisis is compounding the problem.”
Other reports last week signaled the U.S. continues to lose jobs. ADP Employer Services said companies in the U.S. cut an estimated 8,000 workers from payrolls in September after a 37,000 decrease in August, according to figures based on payroll data.
Firing announcements increased 33 percent in September from that same month last year, Chicago-based Challenger, Gray & Christmas Inc. said in a statement.
The Commerce Department also reported that construction spending stalled in August after a revised 1.4 percent drop the previous month that was more than twice as large as previously estimated. Private residential building increased for the first time since March 2007 and work on commercial projects fell for a fourth month.
Orders from overseas have weakened as economies abroad falter.
“I just can’t imagine that we’ll see a lot of strength in the index in the next few months,’’ Norbert Ore, chairman of the ISM survey, said in a conference call. “It appears to be very similar” to the last recession in 2001, he said. &#8226