A KEY measure of US manufacturing contracted sharply in December, in a sign that recent strength in export-related businesses is being swamped by problems in housing and other parts of the domestic economy.
Until now, factories have shown resilience in the face of the housing turmoil and high oil prices, in large part because exports of products such as aircraft and mining machines helped offset slumping sales of domestically oriented items.
But the latest figures from the factory floor are heightening recession worries and confirm the view that the slowdown is spilling over to a growing list of goods-producing industries.
The Institute for Supply Management reported that its index of factory activity fell to 47.7 in December from 50.8 in November - far lower than most economists were predicting and the lowest reading since April 2003. A reading below 50 indicates contraction.
The index of new orders, a gauge for future business, fell even more sharply to 45.7.
"This is an early warning signal for manufacturing," said Norbert Ore, who directs the ISM survey. "I would not expect it to be a first half that features significantly strong growth."
The report sent the stock market down sharply and raised new doubts about whether the economy's recent pattern of relying on more export-led growth would keep the broader economy out of recession. It also
underscored the widening effect of the credit crunch.
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