January 4, 1995 in Nation/World

Manufacturing’s Growth Slows Survey Shows Higher Interest Rates Are Beginning To Have An Impact

Associated Press
 

U.S. manufacturing’s stamina weakened moderately in December, one of the first signs that the overall economy finally is losing strength from higher interest rates, a widely followed survey showed Tuesday.

Nonetheless, the survey showed manufacturing continued to expand last month, even if at a slower pace. Moreover, inflation at the producer level rose, giving the Federal Reserve Board more justification to raise interest rates again, said economists interpreting the survey results.

The National Association of Purchasing Management, which conducts the survey of executives who do the buying for the nation’s factories, said its index of manufacturing growth based on the survey findings fell to 57.8 percent in December from 61.2 percent in November.

It was the lowest reading since August and the first monthly drop in the index since June.

Manufacturing has been one of the strongest sectors of the economy, and analysts said the report is among the first significant indications of a general slowdown in economic growth.

Data from the housing industry released last week showed that higher interest rates have slowed sales. Higher rates discourage economic growth by making borrowing more expensive.

A 57.8 percent reading in the purchasing managers index still signifies that manufacturing is expanding.

“Even though the report showed a contraction in growth, it’s still relatively high,” said Kathleen Stephansen, senior economist at Donaldson, Lufkin & Jenrette Securities Corp., a New York investment firm.

The NAPM price index surged to 83 percent in December from 77.9 percent in the previous month, its highest level since March 1980 and the fourth time in the past five months that the price index has risen.

The number of companies reporting higher prices also grew. Seventy-one percent of NAPM survey respondents paid higher materials prices, compared to 68 percent in November.

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