Friday, February 2, 2001
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Posted on: Friday, February 2, 2001

Gloomy factory report raises spectre of recession

USA Today

WASHINGTON — There was more bleak news for the U.S. economy yesterday as a closely watched gauge of factory activity fell to its lowest level since the end of the 1990-91 recession — low enough to signal that the entire economy might finally have slipped into recession for the first time in almost a decade.

In a report economists characterized as "grim" and "really ugly," the National Association of Purchasing Management’s monthly index fell to 41.2 in January from an already weak 44.3 in December.

A sub-50 reading — where the factory sector has been since August — indicates that the sector is contracting rather than growing. And, said NAPM, a reading below 42.7 indicates that the weakness in the factory sector — about one-fifth of the overall economy — has gotten severe enough to pull the entire economy into a downturn.

"We’re at or close to a no-growth scenario for the overall economy," said Norbert Ore, chairman of the NAPM committee that conducts the survey. "We’re going to come very close to a recession. If we escape it, it’ll be by the narrowest of margins."

If Ore is right, January would mark the economy’s first no-growth month after 116 months of expansion. Meeting the informal definition of a recession, though, would take at least an additional five months of declining production of goods and services.

Fed watchers say the weak NAPM report raises the odds that the Fed will make another inter-meeting rate cut, rather than wait until its next regular meeting March 20.

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