Financial thoughts

Manufacturing in the U.S. probably contracted at a faster pace in September as sales slowed and the credit crisis deepened, economists said before a report today.

The Institute for Supply Management's factory index dropped to 49.5 from 49.9 in August, according to the median estimate in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction.

The housing recession has already spread to autos, and other industries may soon follow, as mounting foreclosures, tougher lending rules and rising unemployment choke off consumer spending. While exports have so far kept manufacturing from slipping much more, weakening economies around the globe mean overseas sales may also weaken.

“The domestic demand for factory goods is relatively moribund,'' said Steven Wood, president of Insight Economics LLC in Danville, California. “This is dampening production and employment.''

The Tempe, Arizona-based ISM's factory report is due at 10:00 a.m. New York time. Forecasts from the 72 economists surveyed range from 48 to 51.1.

A separate report from the Commerce Department at the same time may show construction spending fell 0.5 percent in August, a second consecutive decline, according to economists surveyed. Decreases in commercial construction, including cutbacks in factory building, and a continued slump in residential real estate will contribute to the drop, economists said.

At 8:15 a.m., a report from ADP Employer Services is forecast to show companies in the U.S. cut 50,000 workers from payrolls last month following a 33,000 decline in August, according to the survey median payday advance lender. It would be the measure's first back-to-back decrease in five years.

Less Spending

Companies are cutting back on investments and hiring as consumer spending wanes. A deteriorating labor market also is causing Americans to limit purchases to necessities such as food and fuel.

Chrysler LLC, the third-largest U.S. automaker, said last week that it planned to fire about 250 workers as part of a plan to cut 1,000 salaried positions by Sept. 30. The Auburn Hills, Michigan-based company's U.S. sales dropped 24 percent through August, more than twice the industry's 11 percent decline.

The U.S. economy, the world's largest, probably grew at a 1.2 percent annual rate during the third quarter, down from 2.8 percent the prior three months, according to a Bloomberg survey of economists from Sept. 2 to Sept. 9.

Cut Forecasts

Since then, economists at JPMorgan Chase & Co., Morgan Stanley and Deutsche Bank Securities Inc. have cut their forecasts as consumer spending stalled and the credit crisis brought down Lehman Brothers Holdings Inc., American International Group Inc. and Washington Mutual Inc.

A narrowing of the trade deficit as exports jumped and imports fell was the biggest contributor to growth in the second quarter, adding 2.9 percentage points, the most since 1980. That is likely to diminish as economies in Europe and Japan falter.

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