U.S. Economy: Manufacturing Shrinks Most Since 2003

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The decrease in today's overall manufacturing index reflected a decline in new orders to the lowest level since October 2001. ISM's new orders index fell to 45.7 from 52.6. The production measure fell to 47.3 from 51.9.

The report follows others that show manufacturing weakening. The Philadelphia Federal Reserve's business gauge for December contracted for the first time in a year and the Richmond Fed's measure also was negative.

Orders for durable goods excluding transport equipment fell 0.7 percent in November, held back by a drop in defense procurement and machinery demand, the Commerce Department said on Dec. 27. Inventories of such goods unexpectedly rose and economists said they will remain watchful as to whether that will detract from economic growth later on.

The inventory index in today's report declined to 45.5 from 46.9. Figures less than 50 mean manufacturers are reducing stockpiles.

Inventories

Stockpile building added 0.89 percentage point to third- quarter economic growth and helped boost growth to the fastest rate in four years. Slower consumer spending and continued housing weakness the last three months of the year probably brought down economic growth in the quarter to a 1 percent pace, one-fifth the rate it did from July through September, according to a Bloomberg News survey taken last month.

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