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November Manufacturing Drops; Construction Weakens

Manufacturing activity fell sharply in November, raising concerns that weakness in housing and autos is spreading to other parts of the economy.

The November index of the Institute of Supply Management, which is put together by the nation's purchasing managers, fell to 49.5 from 51.2 in the previous month. This is the lowest reading for this index since April 2003, when the index showed a reading of 46.5.

The figure, which showed broad-based weakness, fell short of estimates that were revised lower to 51.5. Those estimates were reduced from 52.0 after an unexpected decline in business activity was reported in the Midwest sector on Thursday.

An index reading below 50 indicates a contraction in business activity, which is a worrisome signal about the health of the nation's economy.

"I think it does indicate that the weakness in the economy is not just in housing and autos," said Nigel Gault, chief U.S. economist at Global Insight on CNBC's "Morning Call." "It's a bit broader than that."

Separately, the Commerce Department said construction spending in October fell 1.0%, compared with a 0.3% decline in September. That was a wider-than-expected decline. Economists had expected a 0.3% drop.

The decline in construction spending was led by a seventh straight drop in private residential building and added evidence to a weak housing sector, the government report said.

The construction spending report was yet another sign of the cooling housing market. Since mortgage rates have continued to drop and credit remains widely available, some economists doubt whether action by the Federal Reserve is needed at this time.

"I think the Fed can't make a huge difference given that the housing downturn is what is dragging us down," Gault said. "If house prices are falling, then it may not matter how low interest rates go to induce you to buy."

At the market's close, there will be a report on motor vehicle sales. November car sales are estimated to have risen to 5.3 million from 5.1 million in October.

November light-truck sales are estimated to have risen to 7.3 million from 7.2 million in October.