Manufacturing Reports Show Depth of Global Downturn

By BETTINA WASSENER
The New York Times
Published: Jan 03, 2009

From Australia, to Asia and Europe and the United States on Wednesday, the message in the latest economic reports was clear: manufacturing continued to slump amid the worst slowdown since the Great Depression.

In the United States on Friday, a crucial measure of manufacturing activity fell to the lowest level in 28 years in December. The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index was 32.4 in December down from 36.2 in November.

“Manufacturing activity continued to decline at a rapid rate during the month of December,” said Norbert J. Ore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee. This index was at the lowest reading since June 1980 when it was 30.3 percent.

In addition, Mr. Ore said, “New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948.”

The new orders index was 22.7 percent in December, 5.2 percentage points lower than the 27.9 percent registered in November. No industry sector surveyed reported growth in December; the jobs sector particularly grim. The employment index was 29.9 percent in December, a decrease of 4.3 percentage points from November. That was the lowest reading since November 1982.

In Europe, a closely watched index of purchasing managers showed manufacturing hit a low in December, falling to 33.9 from 35.6. Any reading above 50 signals growth, while a reading below 50 indicates contraction in manufacturing. Similarly grim readings in Australia, China and India highlighted how the Asia-Pacific region has become caught up in the global turmoil.

In China, the purchasing managers’ index by the brokerage firm CLSA showed the manufacturing sector had contracted for a fifth consecutive month. The survey showed the steepest decline in its history.

“With five back to back P.M.I.s signaling contraction, the manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession,” said Eric Fishwick, head of economic research at CLSA in Hong Kong, in a note accompanying the release.

The data added to the flood of statistical evidence from across Asia-Pacific showing that the region is slowing faster than previously thought as demand withers in the United States and Europe.

Australia’s manufacturing index showed a seventh month of contraction, and a similar survey in India showed activity down for a second month in December. In South Korea, December data showed exports plummeted 17.4 percent from a year earlier.

President Lee Myung-bak of South Korea pledged on Friday that the government would go into “emergency” mode to pull the country out of its economic crisis.

And in Singapore, the economy shrank 12.5 percent in the last quarter of 2008 from the previous period, prompting the trade and industry ministry to lower its growth forecast for 2009. The ministry now expects Singapore’s economy to shrink up to 2 percent, with only 1 percent growth at best. Previously, it had expected up to 2 percent growth.

Asian stock markets took Friday’s figures in stride, with the Hang Seng index in Hong Kong gaining 4.5 percent. Stocks in Shanghai fell a moderate 0.7 percent, and the benchmark indexes in South Korea and Singapore both rose more than 2 percent. Shares in Europe were higher. In London, the FTSE 100 was 1.1 percent higher while the CAC 40 in Paris was up 2.2 percent and the DAX in Frankfurt, 2 percent.

On Wall Street, Friday, the first day of trading in 2009 opened slightly higher. The markets, which were closed Thursday, ended up sharply on Wednesday.

Still, the worsening data, combined with a stream of company profit warnings, production cuts and layoffs, raises the pressure on policymakers to step up their efforts to bolster their economies.

India on Friday cut its main interest rate by a full percentage point, to 5.5 percent, and took a series of steps to bring more funds into the country. It also raised the limit on overseas investments in corporate bonds to $15 billion from $6 billion and will contribute 200 billion rupees, or $4 billion, to increase the capital of state-run banks.

Meanwhile, countries across the region were widely expected to make more interest rate cuts in coming weeks.

“China’s economic outlook for 2009 will be best characterized as ‘getting worse before getting better,’ laying the foundation for a firmer recovery in 2010,” said Qing Wang, chief economist for Greater China at Morgan Stanley in Hong Kong.

Mr. Wang expected the pace of growth to continue to slow in the first six months, before stimulus measures can take effect. “The authorities have already made delivering economic growth a top policy priority by adopting a campaign-style policy execution approach,” he said.

Mr. Wang expects interest rates to be cut aggressively by another 1.35 percentage points this year. The country’s important one-year lending rate is 5.31 percent. He added that a $586 billion stimulus package announced in November “is unlikely to be the first and only stimulus package for the entire year.”

The package includes substantial infrastructure spending, which will begin to lead to increased activity once weather conditions allow construction to begin in the spring. “The stimulus package provides a short-term buffer for the economy, and other policy measures such as health care and land reforms will be a long-term growth driver. This should help the stock market at least to stabilize in 2009,” Yi Tang, general manager at Edmond de Rothschild Asset Management in Hong Kong.

“We are seeing some encouraging signs that institutional investors are starting to consider putting money back into equities in China and the rest of Asia, hopefully in the next month or two,” he said. “But it will take longer for retail investors — who are worried about their job prospects and the wider economy — to go back into the market.”

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