Posted on 09/30/2003 8:46:34 AM PDT by Starwind
UPDATE - U.S. Midwest business expansion brakes sharply
Tuesday September 30, 11:06 am ET
By Ros Krasny
(Adds quotes, prices)CHICAGO, Sept 30 (Reuters) - The pace of business expansion in the U.S. Midwest slowed unexpectedly in September, falling well short of market expectations, according to figures released on Tuesday.
Business activity is rebounding from the worst downturn in two decades, but the National Association of Purchasing Management-Chicago barometer dropped to its lowest since April.
The index plunged to 51.2 from 58.9 in August. Economists polled by Reuters had forecast the September index to come in at 57.0, in a range of 56 to 60.
"The Chicago Purchasing Managers' (index) fell off a cliff, It is an ugly report," said Cary Leahey, economist at Deutsche Bank Securities.
A reading above 50 indicates an expanding regional business sector while a reaching below 50 signals contraction. The Chicago index has been above 50 for five straight months.
Also on Tuesday, the Conference Board's consumer confidence report fell to 76.8 from 81.7 in August.
"The much lower-than-anticipated reading of the NAPM-Chicago report and the drop of consumer confidence tell us that the U.S. economy has slowed from its strong pace of this past summer," said John Lonski, chief economist at Moody's Investors Service (News - Websites).
"The boost to spending by tax cuts was of greater benefit to foreign manufacturers than to U.S. domestic industry," Lonski said.
A shift in manufacturing to low-wage countries and away from the U.S. is emerging as a huge economic and political issue.
On Tuesday, Chicago Federal Reserve President Michael Moskow said it was too soon to know whether the U.S. Midwest will still be able to compete with countries that have lower labor costs, like China.
Because Chicago is the economic hub of the Midwest, some interpret the NAPM-Chicago report as a litmus test for Midwest manufacturing, although both manufacturing and service sector companies are included in the index.
The employment component of the index, which rose above 50 in August for the first time since March 2000, lurched lower again, to 45.3 from 51.2.
Most of the other subindexes used to calculate the report fell in September.
Production dropped to 55.8 from 61.6 in August. New orders plunged to 53.2 from 60.5 in August. Prices paid dropped to 51.8 from 52.4. Inventories -- which are not used to calculate the index -- rose to 52.8 from 49.8.
Treasury prices jumped on the data while U.S. stocks fell sharply. The Dow Jones industrial average (^DJI - News) dropped over 1 percent to its lowest level since mid-August, while the 10-year Treasury note yield (US10YT=RR) dropped to 3.94 percent, a two-month low, from 4.02 percent just before the release.
Some economists believe the Chicago barometer contains clues to the national Institute for Supply Management report, due on Wednesday. Economists polled by Reuters expect the June ISM index to rise to 55.0 from 54.7 in August.
"The Chicago and ISM surveys follow similar trends, but the Chicago number is more volatile in the short term. The two move in the same direction only about six months in 10," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. (Additional reporting by Doris Frankel)
LOL! "And in other news today..."
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