US Midwest Business Hits the Skids in October

Business activity in the U.S. Midwest came to a screeching halt in October, shrinking at a far more rapid rate than expected as production and new orders plummeted, a report showed Friday.

The Institute for Supply Management-Chicago business barometer fell to 37.8 from 56.7 in September, the lowest reading since 2001.

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"We can take the latest data as a categorical sign that the manufacturing economy hit a wall in October. The collapse in orders, orders backlog, and output is stunning,'' said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Economists had forecast the index at 48.0. A reading below 50 indicates contraction in regional activity.

The employment component of the index fell to 41.5 from 49.1 in September. New orders slumped to 32.5 from 53.9 while production tumbled to 30.9 from 71.4.

Pushed down by the rapid drop in gasoline and other key industrial components, prices paid fell to 53.7 from 80.7 in September, a record monthly decline.

"The data are much worse than expected, but they do parallel the fall-off in other purchasing managers surveys, including Philly and New York. The weak data should keep a decent bid in bonds,'' said strategists at Action Economics.

Many consider the ISM-Chicago survey a factory report since the region is relatively industrialized, and especially tied to the fortunes of the automotive industry, but service sector companies and nonprofits are also polled.

"A dramatic decline ... it suggests the credit crunch is having a significant effect on regional manufacturing,'' said David Sloan, analyst at 4CAST Ltd in New York.

Analysts said the weak Chicago index raised the potential for a low result on Monday's national ISM factory survey, which is currently forecast at 41.8 in October against 43.5 last month.

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