U.S. Manufacturers Feeling Pain of Slowing Economy

Yoshie Furuhashi furuhashi.1 at osu.edu
Fri Dec 1 18:09:09 PST 2000


U.S. Manufacturers Feeling Pain of Slowing Economy

By REUTERS

Filed at 4:01 p.m. ET

NEW YORK, Dec 1 (Reuters) - U.S. manufacturers are bearing the brunt of an economic slowdown they say may be throwing the world's largest economy into a lower gear too quickly and may soon require a jump-start from a cut in interest rates.

For the fourth straight month, the manufacturing sector contracted in November as demand for U.S. goods kept shrinking, the nation's purchasing managers reported on Friday.

As evidence of an economic slowdown mounts -- from higher jobless claims to lower car sales -- talk is heating up that the Federal Reserve has to move fast to cut rather than raise rates.

``This economy is not as healthy as people think,'' Jerry Jasinowski, President of the National Association of Manufacturers told a Washington news conference. ``We think the Fed's interest rate policy is more than the economy can deal with as it begins to slow down.

``The number of uncertainties and risks for the economy have increased. The possibility of an economy deteriorating beyond a soft landing to a hard crash is significant,'' he said.

The National Association of Purchasing Management reported on Friday that its closely watched index of manufacturing activity fell to 47.7 in November from 48.3 in October, remaining below the key level of 50 for the fourth consecutive month.

A reading below 50 indicates the sector -- which represents one-fifth of U.S. economic activity -- is shrinking.

These numbers closely mirror previously released data showing orders for expensive goods like cars, airplanes and furniture tumbled 5.5 percent in October while consumer confidence fell to 133.5, its lowest level in more than a year.

``I don't think there is any doubt that demand has softened,'' said Norbert Ore, chairman of NAPM's survey committee. ``As far as the manufacturing sector is concerned, we are certainly feeling this (slowdown) more than other segments in the economy.''

MARKETS SPOOKED

Financial markets too have been spooked by the sudden, sharper than expected slowdown with stocks sinking far and fast and the bond market rallying.

Even though Wall Street recovered a bit of lost ground on Friday, the Nasdaq index has plunged more than 20 percent in November as fears of softer corporate profits chipped away at the once robust sector.

Wall Street economists too are looking at a bleaker picture and some are beginning to scale back growth forecasts for the fourth quarter and early next year. They say this may force the Federal Reserve to act quickly to reverse the effects of the string of six rate hikes it made between June 1999 and May of this year to slow growth and stamp out inflationary pressures.

Goldman Sachs economists on Friday said recession risks are rising and revised growth forecasts for the fourth quarter of this year to 2.7 percent from 3.8 percent. The firm said forecasts for the first half of 2001, currently averaging 3.1 percent, are also at risk of being lowered.

Meanwhile Credit Suisse First Boston economists dramatically altered their views on monetary policy, saying the Fed's key federal funds rate on overnight bank lending would be trimmed to 5.75 percent next year from its current 6.5 percent. The firm had earlier forecast no change in interest rates next year.

At the same time, though, most economists remain confident that even as growth slows from the red-hot levels of just a few months ago, the cooling does not now seem severe enough to spark a recession.

``There is no question that we are moving to a more moderate pace of growth, but the economy is not so riddled with worrisome factors that it is in danger of becoming fragile,'' Banc One Capital Markets chief economist Dana Johnson said.



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