NEW YORK – The Sept. 11 attacks exacted a sharp and painful toll on the nation's factories, driving a key index of U.S. manufacturing activity to lows last seen at the depths of the 1990-91 recession, an industry report showed on Thursday.
The National Association of Purchasing Management said its monthly gauge of factory activity plunged to 39.8 in October from 47.0 in September, its lowest level since Feb. 1991.
Both new orders and factory production posted some of their steepest declines on record as shockwaves from the Sept. 11 attacks rippled through the economy, the report said.
A reading under 50 signals that manufacturing activity -- nearly one-sixth of the overall economy -- is declining. The NAPM index has held below 50 since August 2000, and the October report was far worse than the 44.3 reading expected by economists.
The October report marked a severe and abrupt setback for a sector that had been trying to claw out of its 15-month slump, but now looks set to struggle until well into next year.
"It's another nail in the coffin for the economy," said Oscar Gonzalez, economist at John Hancock Financial Services Inc. "There is no silver lining. There is nothing to grab onto to suggest the economy is ready to climb out of a hole."
Capturing the full impact of Sept. 11, the new orders component, a key gauge of pipeline demand for factory goods, plunged to 38.3 in October from 50.3 in September. The production index tumbled to 40.9 from 51.3 in September.
Just two months ago, those two components signaled factories were at last ramping up production as a pickup in new orders signaled manufacturing activity, which led the economy into a slump in mid-2000, was on the mend.
"It would appear to me that we have been set back six to nine months," said Norbert Ore, chairman of NAPM's business survey committee.
The new export orders index fell to 45.0 from 45.9 in September as economic weakness spread overseas. The employment index dropped to 35.1 percent in October from 41.2 in September, signaling a rising wave of factory layoffs.
The bleak employment component is a harbinger of more bad news in Friday's critical October jobs report, which is expected to show the economy shed another 289,000 jobs last month.
The report showed that firms continued to shed inventories at a rapid clip. The inventories index fell to 36.8 in October from 38.9 in September.
While paring inventories is a necessary condition for factories to meet any new demand by raising production rather than clearing goods off their shelves, without new orders coming in, the leaner inventories offer cold comfort to manufacturers.
The report drove long-term U.S. Treasuries higher and kept the dollar under pressure. The benchmark 10-year Treasury note was up nearly a full point at 106-27/32, yielding 4.14 percent, while the dollar hovered near two-week lows around 91 cents per euro.
The NAPM report is compiled by a survey of purchasing executives in more than 400 industrial companies.