ISM index hits 38.9%, lowest since 1982, marking second straight big drop
WASHINGTON (MarketWatch) -- The nation's manufacturing firms reported the worst level of output in 26 years, further evidence that the economy is slumping sharply, according to a closely followed survey of top executives released Monday.
The Institute for Supply Management index fell to 38.9% from 43.5% in September, below the 41.5% expected by economists surveyed by MarketWatch. See Economic Calendar.
The result is the lowest reading since September 1982. The indexes for production and new orders fell to their lowest level in 28 years. Read full survey.
Readings below 50% in the ISM diffusion index indicate that more firms are contracting than growing. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better or worse this month than last month.
The ISM had fallen sharply to 43.5% in September from 49.9% in August. As a result, the two-month decline of 11.0 points is the largest such drop since May 1980.
The nation's economy, as measured by gross domestic product, declined at a 0.3% pace in the third quarter. The ISM report suggested that the current quarter will be much weaker.
The key for manufacturing, as always, is the strength of final demand. Consumers have been cutting back spending amid the housing market recession, rising unemployment and the credit crunch.
The key issue now is just how much of the plunge in activity reflects the shock of the market meltdown and how much will be sustained, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The ISM is at clearly at recessionary levels, consistent with a 0.7% drop in GDP.
"There is no doubt that this is a recession," said Norbert Ore, head of the ISM's survey committee.
The weakness was across the board, Ore said. Only two of 18 industries as tracked by Tempe, Ariz.-based ISM were growing in October, and those two by only a tiny amount.
Details of ISM manufacturing report
October new-orders index fell to 32.2% from 38.8% in September, the ISM's data showed. This was the lowest since June 1980.
The production index dropped in October to 34.1% from 40.8%. This was also the lowest since June 1980.
The prices-paid index fell to 37.0% from 53.5%. This was the lowest since December 2001.
The inventories index only rose slightly to 44.3% for October from 43.4% in the previous month.
The index tracking orders for exports fell to 41.0% in October from 52.0% in September.
The employment index dropped to 34.6% from 41.8% in September, indicating further job losses in the sector. This was the lowest level since March 1991.
On Friday, the government will report the change in payrolls and the unemployment rate for October.
Economists surveyed by MarketWatch are looking for payrolls to fall 200,000, a drop that would be the sharpest since March 2003. They are also expecting an unemployment rate of 6.3%, the highest since June 2003. See full story.
In a separate report, construction spending fell 0.3% in September, milder than the 0.8% drop expected.
