"Stunning Decline" in Manufacturing Sector

This is without a catastrophic meltdown. If credit markets deteriorate further due to the failure to put a bailout program in place or for other reasons, watch out:

The Manufacturing Sector Capitulates, RTE: For months and months, the widest-followed index of manufacturing activity, produced by the Institute for Supply Management, has wavered within a narrow range, showing essentially slight growth in the sector as other industries tanked.

Then, along came September.

The ISM manufacturing report released this morning showed a stunning decline in several key components as the overall index last month dropped by more than six points to 43.5, its lowest reading since October 2001. ...

New orders plunged by nearly ten points, the employment index sank by about eight points, and production overall dropped by a whopping 11 points last month, as all measures receded deeper into contraction.

Export orders, a source of strength for the sector over the past year, dropped by five points. Inventory gauges also tanked, a sign that manufacturers are paring back... – even though the enormously important holiday shopping season is fast approaching.

Finally, the gauge of prices paid dropped by a mammoth 23 points, partly because of the decline in oil and related fuel prices since this summer and partly because of cooling global demand for commodities and goods. ...

A second stimulus package wouldn't hurt either, especially with the lags in the process. But it appears congress wants to wait until it's too late to do anything about it.

Update: Economix:

The Chronicle of Higher Education reports:

Wachovia Bank has frozen the accounts of nearly 1,000 colleges, leaving institutions unable to access billions of dollars they depend on for salaries, campus construction, and debt payments.

The freeze, which affects most institutions that invest their endowment income and other assets through Commonfund, has some colleges worried that they won’t be able to make payroll this period…

Wachovia, which agreed to sell its banking operations to Citigroup this week, announced on Monday that it was resigning as trustee of the fund and would allow plan participants to withdraw only 10 percent of their assets — the value of the securities that had reached maturity. That percentage grew to 26 percent on Tuesday as additional securities reached maturity, and is expected to reach 57 percent by the end of this year and 74 percent by the end of 2009.

But unless the credit markets thaw, enabling a new trustee to sell more of the short-term securities in the fund, colleges won’t be able to access all their money until at least 2010.

Free Exchange quotes Jim Hamilton:

But at least we have consumer spending, right?

Maybe September was exceptionally strong (very unlikely from anecdotal evidence), or maybe July and August will be revised upwards, but the two month estimate suggests real [personal consumption expenditures (PCE)] will decline in Q3 by about 2.4% (annual rate).

Since PCE accounts for about 71% of GDP, this also suggests the change in real GDP in Q3 might be negative. This depends on exports and changes in inventories (investment will be weak).

If accurate, this will be the first decline in PCE since Q4 1991. This is strong evidence that the indefatigable U.S. consumer is finally throwing in the towel.

Barry Ritholtz:

Auto sales, which were weak over the past 11 months, fell off the table today:

• Ford Motor posted a 34% drop. Their truck and van sales fell 39%, SUV sales plummeted 57% and F-series truck sales dropped 42%.

• Honda reported a 24% decline in sales;

• Volkswagen sales for September fell 9.4%;

• Hyundai Motor's U.S. sales fell 25%;

• Toyota U.S. Sept. sales drop 32.3%

• General Motors sales down 15.6% (better than the expectations of -26%)