- The Washington Times - Wednesday, November 1, 2006

ASSOCIATED PRESS

Manufacturing expanded at the slowest pace in more than three years, and construction spending declined as housing continued to suffer through its longest stretch of weakness since 1995.

Two reports released yesterday depicted an economy beginning to feel the impact of the sharp slump in the once-booming housing sector.

The Institute for Supply Management said its gauge of manufacturing activity fell to 51.2 last month. That compares with 52.9 in September and is the lowest since June 2003. October’s decline reflected weakness at companies that supply the beleaguered auto and housing industries.

The Commerce Department said spending on construction projects dropped by 0.3 percent to a seasonally adjusted annual rate of $1.196 trillion in September. Housing activity fell for a sixth straight month, the longest stretch of declines since 1995.

“It now seems clear that the U.S. factory sector is straining under the weight of declining auto production and a deteriorating housing market,” said Bart Melek, an economist at BMO Capital Markets.

Analysts said manufacturing, which had strong growth in recent years after the 2001 recession, probably would slow sharply in the coming months, reflecting the overall sluggish economy.

“The manufacturing malaise is gathering steam, and the troubles in the vehicle sector point to further problems ahead,” said Joel Naroff, chief economist at Naroff Economic Advisers.

Analysts said the 1.1 percent drop in home building in September, the sixth consecutive decline of 1 percent or more, showed how quickly builders were scaling back production in the face of slumping demand.

“Housing is still a huge drag and will remain so for the foreseeable future,” said Ian Shepherdson, chief economist at High Frequency Economics.

Some economists have worried that the sharp drop in housing could rattle consumer confidence and push the U.S. into a recession. Those fears have abated as gasoline prices have retreated from above $3 per gallon, leaving consumers with more money to spend elsewhere.

The 51.2 reading for the manufacturing index was lower than the 53 mark economists had expected. It reflected weakness in new orders and production. But a slide in the index of prices paid was seen as good news “signaling some relief for buyers for the first time in 15 months,” said Norbert J. Ore, ISM’s chairman.

The 1.1 percent drop in private residential construction pushed total spending in this area to $312.7 billion at a seasonally adjusted annual rate.

The weakness in housing was partially offset by a 0.1 percent rise in spending on nonresidential private building projects. They hit an all-time high of $312.7 billion at a seasonally adjusted annual rate, sparked by increases in hotels, office buildings and the category that includes shopping centers.

Spending on government building projects rose by 0.9 percent to a record of $273.2 billion. This increase reflected a 1.1 percent jump in spending for state and local projects, which offset a 1.5 percent drop in spending on federal building projects.

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