A measure of U.S. business activity rose from a 26-year low in December, as an index of costs dropped to the lowest in almost 60 years. Measures of inventories and production fell.
The Institute for Supply Management-Chicago said today its business index increased to 34.1 this month from 33.8 in November. Fifty is the dividing line between growth and contraction. A gauge of prices paid fell to 30.5, the lowest level since April 1949, from 50.7, as fuel costs declined.
Manufacturers are reining in production and costs as global demand slows. A drop in business investment threatens to prolong the U.S. recession that started a year ago this month.
“Further weakness is still ahead,” Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Businesses are very reluctant to increase production given the drop-off in demand.”
The Chicago index was projected to fall to 33, according to the median forecast in a Bloomberg News survey of 46 economists. Estimates ranged from 29.8 to 42.1.
Another private survey showed home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.
The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
The Chicago report’s measure of new orders rose to 29.4 from 27.2 from in November. The production gauge fell to 31.7 from 34.3.
Order backlogs dropped to 25.6 from 28.2, while the employment index increased to 39.6 from 33.4.
The Labor Department may report Jan. 9 that employers cut 475,000 jobs this month, according to the median estimate in Bloomberg survey. Last month they eliminated 533,000 positions, the most in 34 years.
Initial jobless claims rose to a 26-year high of 586,000 in the week ended Dec. 20 payday cash loan.
Caterpillar Inc., the biggest maker of construction equipment, said Dec. 22 it will cut executive pay as much as 50 percent and suspend merit increases for management and support staff in order to trim costs. The company is offering voluntary buyouts to U.S.-based employers through Jan. 12 and will continue to close plants temporarily and cut jobs.
The Institute for Supply Management is scheduled to release its December manufacturing report on Jan. 2. Economists surveyed by Bloomberg project the measure dropped to the lowest level since 1982.
Regional surveys have already signaled the manufacturing slump persisted this month. The Federal Reserve Bank of New York’s general economic index fell in December to the lowest level since records began in 2001, and the Philadelphia Fed’s index showed industries in that region contracted for the 12th time in 13 months.
The Chicago group’s measure of inventories dropped to 36.4 from 41.2 the prior month.
Auto industry suppliers are hard hit by declining car sales. Car and light truck sales fell to a 10.2 million annual pace in November, the slowest rate since October 1982.
President George W. Bush said Dec. 19 the government will extend $13.4 billion in emergency loans to General Motors Corp. and Chrysler LLC in exchange for the companies substantially restructuring their businesses. Both companies had said they were only weeks away from insolvency without an infusion of cash.
Yesterday the Treasury committed $6 billion to support GMAC LLC, enabling GM’s financing arm to expand lending to car buyers.
The U.S. entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg earlier this month projected GDP this quarter would shrink 4.3 percent, the biggest contraction since 1982, and would remain negative through the first half of 2009.