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U.S. manufacturing continues to decline

Extending a recent trend line headed south, U.S. manufacturing activity declined once again in October, particularly with the West Coast dock slowdown putting pressure on the import picture.

A key report on the manufacturing sector compiled by the nation's purchasing managers showed that manufacturing activity declined for a second straight month in October. The Institute for Supply Management's (ISM) monthly Purchasing Managers' Index (PMI) slipped to 48.5 percent, down 100 basis points, or one percentage point, from 49.5 percent the preceding month. The index now stands 770 basis points, or 7.7 percentage points, beneath its level of 56.2 just five months ago, in June, when the sector showed signs of renewed activity and the start of a possible turnaround.

A reading above 50.0 percent indicates growth in the manufacturing sector, while anything beneath that signals a decline in activity.

"The manufacturing sector continued its recent trend as it lost momentum again in October," said Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee. "There has been very little month-over-month change in manufacturing activity, as the PMI has averaged 49.8 percent over the last four months. The West Coast dock strike obviously had an impact as the Imports Index fell six percentage points."

In addition to a worsening imports picture, the monthly report showed that while new orders are growing, production is contracting, supplier deliveries are slowing and employment and inventories are both declining.

The October recap showed that the Backlog of Orders Index declined for a fourth straight month and the Supplier Deliveries Index "reflected slower deliveries for the 10th consecutive month," said the purchasing managers' trade group. "Manufacturing employment continued to decline in October as the index remained below the breakeven point — an index of 50 percent — for the 25th consecutive month."

At the same time, the Prices Index, at 58.3 percent, remained above the 50 percent mark, "as manufacturers experienced higher prices for the eighth consecutive month," said the ISM. "New export orders grew in October for the 10th consecutive month, " said the purchasing managers. But, hampered by the West Coast dock strike, "October's Imports Index declined after 10 consecutive months of growth."

The ISM's October report said, "The major uneasiness of purchasing and supply executives surrounds the dock strike on the West Coast, with one respondent indicating significant costs incurred due to air freight costs from Japan. Others are still concerned about possible war with Iraq. On the upside, a number of companies appear to be thriving in this environment, indicating that orders are up in markets where they compete with exports."

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