Slowdown in Manufacturing Sends Stock Markets into Tizzy; Dow Sheds Over 300 points

Edited by Vani Rao

US manufacturing falls in January as new order growth plunged to 33-year low

US manufacturing grew at a much slower rate in January than in the previous months as new order growth plunged to a 33-year low. It appears that the cold weather played the troublemaker, delaying raw material shipments and causing many factories to shut down. Factory closings led to lower output and fewer new orders. This in turn pushed overall factory activity to an eight-month low. As a result, US stocks nosedived, with benchmark indexes falling through key support levels.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 in January to its lowest level since May 2013, from 56.5 in December. The January reading marked a second straight month of slow growth from November’s level of 57, raising concerns that the economy may be losing the momentum seen in the second half of 2013.

shutterstock_150238106The biggest concern in ISM’s report was the huge drop in the new orders index, which fell to 51.2 in January from 64.4 in December, the largest monthly decline since December 1980. Indicators of employment, production, and inventory growth also declined from the December levels. The employment reading of 52.3 in January was the weakest since June and well below December’s 18-month high of 55.8. As a result, the Dow Jones Industrial average shed 326.05 points, or 2.1%, to 15,372.80, well below its 200-day moving average for the first time since 28 December 2012. The Dow has shed 7% so far in 2014.

While manufacturers said that export orders grew at a healthy pace, although lesser than in the previous month, ISM data shows that auto sales have slowed down and businesses are tightening their spending on new machinery. However, according to the Federal Reserve, factory output rose for the fifth consecutive month in December, sending out mixed signals about US manufacturing.

Manufacturing across the globe witnessed mixed trends in January. The factory index in China dropped to a six-month low, giving way to fears that government efforts to reduce excessive credit will put the brakes on growth. The Purchasing Managers’ Index was at 50.5 on 1 February 2014, according to Bloomberg. The UK also witnessed a general slowdown in manufacturing, with the reading declining to 56.7 in January from 57.2 in December, as per Bloomberg.

On a final note, the manufacturing slowdown could have a domino effect on the overall economic growth. Growth in January-March may be less than the 3.6% witnessed in the second half of 2013.

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