US Manufacturing Shrinks To 26-Year Low in October

U.S. factory activity contracted sharply in October, falling to its lowest in 26 years as the financial crisis ravaged the world's largest economy, an industry report showed.

AP

"Pretty grim,"  said Robert Macintosh, chief economist at Eaton Vance Corp in Boston. "It means we're in a recession, it's as simple as that...a pretty solid manufacturing recession...The question is how long or deep is it going to be? Where is this group of economists that is charged with declaring a recession? Why haven't they said anything?"

The Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September. The level of 50 separates contraction from expansion, and a reading below 40 is exceptionally weak.

On Wall Street, stocks briefly turned lower after the weaker-than-expected data, while the dollar trimmed its gains versus the yen.

Economists had expected a reading of 41.5, according to the median of forecasts in a Reuters poll.

The report was uniformly weak, and employment in the sector was dismal. The ISM's gauge of employment fell to its lowest since March 1991 and suffered its biggest one-month drop in 20 years.

The data foreshadowed a grim outlook, with the index of new orders hitting its lowest since 1980.

Meanwhile, a separate report showed construction spending fell by a smaller-than-expected amount in September as a rebound in nonresidential activity helped offset further weakness in home building.

The Commerce Department says construction spending dropped by 0.3 percent in September, less than the 0.8 percent decline many economists had been expecting. Spending had been up by 0.3 percent in August after a huge 2.4 percent plunge in July.

The weakness in September was led by a 1.3 percent drop in housing construction, which has fallen every month but two over the past 30 months. Spending on government projects fell by 1.3 percent, the biggest setback since January.

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