Wall St soars on signs of slowdown
Wednesday 03 January 1996
Manufacturing activity in the US fell for the fifth month in a row in December.
The slowdown reinforced hopes yesterday that the Federal Reserve would follow last month's reduction in key interest rates with another cut at the end of January, lifting the Dow Jones Industrial Average 66 higher to 5,183 near the close.
The weaker-than-expected monthly survey of industry from the National Association of Purchasing Managers showed the pace of decline in industry slowing between November and December.
But thanks to sluggish consumer spending, new orders and employment fell, while manufacturers' stocks of finished goods increased.
Ralph Kauffman, the NAPM's chairman, said manufacturing might have turned the corner.
''The indications are optimistic that we have hit the bottom, perhaps, and we might start to turn up,'' he said.
Other economists were pessimistic, however. ''It was a downbeat report that suggests the manufacturing sector has yet to turn the corner,'' said Cary Leahey, an analyst at Lehman Government Securities.
David Wyss, chief economist at consultancy DRI, said: ''Outside of computers, we're seeing a general weakness in manufacturing.'' There was no sign of growth in sales of cars or other consumer durables, he said.
Initial retailers' reports, likely to be confirmed by surveys released today, suggest that the Christmas spending season was disappointing.
The NAPM index rose to 47.3 last month from 46.5 in November. It was the fifth successive figure below the 50 boundary between expansion and contraction.
The index for new orders fell substantially below the key level of 50. A rise in export orders was the only area of activity to show a significant improvement.
The brightest note in the NAPM survey was a sharp fall in the price component, down from 44.5 to 40.8. This marked the lowest for more than four years, and shows that materials costs remain very subdued.
This cheered Wall Street analysts who hope for another reduction in the key Federal Funds rate from its current level of 5.5 per cent.
When the Fed announced a quarter point reduction on 19 December it said the move was due to inflation being ''somewhat more favourable than anticipated'' and to the associated decline in expectations of inflation.
Surveys and data published by the Federal Reserve are the only economic information available as long as the partial closure of the Federal Government lasts. Other statistics have been delayed indefinitely.
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