Friday, February 02, 2007

US manufacturing ‘on brink of recession’

US manufacturing ‘on brink of recession’
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: February 1 2007 16:43 | Last updated: February 1 2007 16:43

The US manufacturing sector contracted unexpectedly this month as factory activity fell to its slowest pace in nearly three years, according to a fresh survey.

The Institute for Supply Management said its manufacturing index fell into negative territory in January as it slipped below the 50 mark to 49.3.

The poor performance underlined economists’ fears that the sector could be sliding into recession.

Industry leaders have been predicting a recovery this year after a weak performance in recent months. But a fall in new orders in January suggests further weakness ahead, economists said.

Richard Iley, an economist at BNP Paribas, said: “The ISM manufacturing index was weaker than expected and dovetails with our assessment that the manufacturing sector is really very weak and on the brink of recession.”

Investors largely shrugged off the poor factory performance as US stock markets touched new highs, sustaining a rally that began this week after the Federal Reserve expressed increasing confidence in the economy.

Investors were encouraged by separate data released on Thursday that showed personal incomes rose 0.5 per cent last month.

The gain adds to recent increases in Americans’ disposable income, which has lifted consumer spending and was the main driver of economic growth of 3.5 per cent in the fourth quarter.

The government figures also showed inflation pressures remained “moderate”, according to Haseeb Ahmed, an economist at JPMorgan.

The core price index rose 0.1 per cent, following an unchanged reading in November and a 0.2 per cent rise in October.


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