Construction spending climbed slightly in November, but the Institute for Supply Management’s manufacturing index reached its lowest point since April 2003.
The Commerce Department reported that spending on construction projects rose by 0.1 percent in November to a seasonally adjusted annual rate of $1.165 trillion, a better performance than what economists expected. Spending had fallen by 0.4 percent in October.
The small improvement came despite the fact that housing fell for a record 21st straight month, with private residential construction dropping by 2.5 percent to an annual rate of $484.9 billion, down by 17.5 percent from a year ago.
However, a closely watched gauge of manufacturing activity showed the factory sector contracted in December, the first decline after 10 months of gains.
Contraction
The Institute for Supply Management said its manufacturing index dropped to 47.7 in December, down from 50.8 in November. It was the weakest showing since April 2003 during the period of the U.S. invasion of Iraq. Any reading below 50 is considered a sign that manufacturing is contracting rather than expanding.
The much weaker-than-expected reading on the manufacturing sector and a spike in oil prices up to $100 a barrel triggered recession worries on Wall Street and sent stocks plunging. The Dow Jones industrial average fell 220.86 points to close at 13,043.96 on the first trading day of the New Year.
"The contraction in manufacturing activity is yet another indication that the housing market problems are becoming more widespread,' said Joel Naroff, chief economist at Naroff Economic Advisors.
Nigel Gault, an economist at Global Insight, another forecasting firm, said the manufacturing decline "clearly moves recession risks higher."
January 4, 2008