Dec. 3 -- Manufacturing in the U.S. grew in November at the slowest pace in 10 months as the housing slump spread.
The Institute for Supply Management's manufacturing index dropped to 50.8, as forecast, from 50.9 the prior month, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion.
Export gains by themselves won't be enough to shield factories from the emerging slowdown in consumer spending and business investment, economists said. Credit restrictions have also limited access to financing and may lead to further declines in orders and production.
``The economy is starting to show signs of weakness outside of the depressed housing sector,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc., said before the report. Businesses are ``becoming more cautious. Tighter credit is likely to continue to restrain capital expenditures.''
Economists projected the ISM's manufacturing index would fall to 50.8, according to the median of 71 projections in a Bloomberg News survey. Estimates ranged from 48 to 52.1.
The group's gauge of prices paid rose to 67.5 from 63. Economists surveyed by Bloomberg had expected the measure to rise to 66.
The decline reflected decreases in employment and inventories. The inventory index fell to 46.9 from 47.2. Figures less than 50 mean manufacturers are reducing stockpiles. The ISM's employment measure fell to 47.8, the lowest since September 2003, from 52 in October.
Exports Gain
Increases in exports, production and orders prevented the decline from being even bigger. A gauge of export orders rose to 58.5, the highest since May, from 57.
The new orders index increased to 52.6 from 52.5, and the production index rose to 51.9 from 49.6.
The report runs counter to regional surveys that showed manufacturing gained strength. Measures from the National Association of Purchasing Management-Chicago and the Federal Reserve Bank of Philadelphia released previously rose, while the New York Fed's gauge held near a three-year high.
Economists lowered fourth-quarter growth forecast after reports last month showed inventories grew more last quarter than previously estimated, while consumer spending slowed in October and orders for durable good dropped.
Forecasts Decline
Economists at Lehman Brothers Holdings Inc. in New York project the economy will expand at a 0.8 percent annual rate from October through December, down from a 4.9 percent pace in the previous three months. The data currently available suggest growth may be as weak as 0.2 percent, Morgan Stanley said.
``Businesses are less willing to shell out money for long- term investments,'' Ryan Reed, an economist at National City Corp. in Cleveland, said before the report.
Orders for goods meant to last several years fell 0.4 percent in October, the Commerce Department said on Nov. 28. The gain in unfilled orders for capital goods excluding aircraft, a sign of business demand, was the slowest in eight months.
``There's less work to be done and that is consistent with more modest investment,'' Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York, said before the report. ``It's clearly slowing.''
The ISM's measure of orders waiting to be filled slumped to 41.5, the lowest since March 2003, from 46. The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 51.7 from 50.6 the prior month.
Foreign Demand
Overseas demand helped Deere & Co., the world's largest maker of tractors and harvesters, boost profit in the fourth quarter. Demand in Brazil and Eastern Europe lifted overseas sales 32 percent, Deere said Nov. 21. That softened the blow from reduced revenue in the construction and forestry unit that reflected the housing slump.
Still, companies are probably trying to cut back on hiring to control costs. The economy may have created 75,000 jobs in November, less than half the 166,000 added the previous month, according to the median estimate of economists surveyed by Bloomberg News ahead of the Labor Department's Dec. 7 employment report.
``Uncertainty surrounding the outlook'' is ``even greater than usual,'' Fed Chairman Ben S. Bernanke said Nov. 30. That will require central bankers to be ``exceptionally alert and flexible,'' he said.
Federal funds futures show traders see a 100 percent chance of a reduction in the benchmark rate next month, with a 46 percent probability of a half-point move.
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