Fed Provides Grim Look at Factory Sector

The hard-hit U.S. manufacturing sector weakened in October and in November, two Federal Reserve reports released on Tuesday showed.

The Federal Reserve Bank of Richmond said its index of manufacturing shipments fell to -15 in November from -8 in October. Measures of new orders, capacity utilization and the average workweek also fell and were in negative territory.

Index values greater than zero suggest expansion, while values less than zero indicate contraction. The report gauges retail activity in the Richmond Fed district, which includes the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia.

In another report, the Chicago Fed said its index of manufacturing activity fell 2.6 percent to 144.6 in October following a 1.5 percent decline in the previous month. The index level was the lowest since July 1998.

The Chicago Fed index covers the five states in its district, Illinois, Indiana, Iowa, Michigan and Wisconsin. The regional Fed bank said factory activity had fallen 15.7 percent through October in its district since peaking in June 2000.

On a positive note, the Richmond Fed found that even though current manufacturing activity fell last month, factory owners became more hopeful about the future.

Manufacturers' expectations for shipments six months from now rose to a positive 40 in November from 25 in the previous month. Their outlook for new orders, capacity utilization, number of employees and average workweek also rose.

The manufacturing sector has been hardest hit by the dramatic slowdown in the U.S. economy as businesses have severely reduced orders as they try to reduce inventories before buying new goods.

According to a survey released earlier on Tuesday, the manufacturing sector is expected to turn a corner in 2002. The National Association of Purchasing Management said 59 percent of executives responsible for buying raw materials for manufacturers saw higher revenues in 2002 than in 2001.