US Factory activity slows in January to eight-month low, hints at slowing economy

Feb 04 2014, 11:05 IST
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Bad weather appeared to hurt US auto sales in January, with Ford and General Motors reporting a slide in sales for the month. (AP) Bad weather appeared to hurt US auto sales in January, with Ford and General Motors reporting a slide in sales for the month. (AP)
SummaryEconomists largely blame frigid temperatures for the chill in economic activity.

U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in 33 years while construction spending barely rose in December, pointing to some loss of steam in the economy.

Economists largely blamed frigid temperatures for the chill in economic activity and said they expected a rebound in the months ahead. However, they also cautioned that the economy was receiving some payback after a strong performance in the second half of 2013.

"The disappointing data provide further confirmation of a dramatic slowing in economic growth momentum," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, its lowest level since May 2013, from 56.5 in December.

Bad weather also appeared to hurt U.S. auto sales in January, with Ford Motor Co, General Motors Co and Japan's Toyota Motor Sales USA reported a slide in sales for the month.

U.S. stocks fell sharply on the manufacturing data, with the Dow Jones industrial average off 1.5 percent and the S&P 500 losing 1.7 percent. The yield on the benchmark 10-year Treasury note hit its lowest level since early November and the dollar dropped against a basket of currencies.

Mulraine, however, said "to the extent that this weakening can be attributed to weather-effects, we expect activity to rebound meaningfully in the coming months."

January's ISM figure was also well below the median forecast of 56 in a Reuters poll of economists, missing even the lowest estimate of 54.2. Readings above 50 indicate expansion.

It was the second straight month of slowing growth from November's recent peak reading of 57, which had been the highest since April 2011, and indicated manufacturing was slowing after output grew at its fastest pace in nearly two years in the fourth quarter.

Underscoring the weather impact, delivery delays increased a bit last month, but the biggest red flag was the huge drop in the forward-looking new orders index, which fell to 51.2 from 64.4 in December. That 13.2-point drop was the largest monthly decline in the key component since December 1980.

"While the magnitude of the decline in the ISM index may have exaggerated the degree of cooling in the underlying pace of factory activity, it reinforces our belief that the optimism surrounding a burst of capital investment in 2014 is overdone," said Michelle Girard, chief economist at RBS in Stamford,

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