U.S. Sept. Chicago Purchasing Managers' Index Slowed

By Timothy R. Homan

Sept. 30 (Bloomberg) -- A measure of U.S. business activity slowed for the first time in seven months in September as new orders and inventories weakened.

The National Association of Purchasing Management-Chicago said today its business index decreased to 56.7 this month from 57.9 in August. Fifty is the dividing line between growth and contraction. The index averaged 54.4 last year.

Demand for American exports is helping offset a domestic slowdown in consumer spending. Still, the credit crisis that brought down Lehman Brothers Holdings Inc., American International Group Inc. and Washington Mutual Inc. is causing companies to cut back on spending.

``Manufacturing is not doing too badly when you think about how poor the domestic conditions are,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``Credit conditions for large machinery purchases are definitely getting much tighter.''

Economists surveyed by Bloomberg News had projected the index would fall to 53, according to the median of 59 forecasts. Estimates ranged from 49 to 56.

Earlier today, a private report showed house prices in 20 U.S. cities declined in July at the fastest pace on record. The S&P/Case-Shiller index dropped 16.3 percent after a drop of 15.9 percent the prior month.

New Orders

The Chicago report's measure of new orders decreased to 53.9 from 60.2 in August, which was the highest since September 2007. The production gauge rose to 71.4, the highest since October 2004, from 63.4 the previous month.

Order backlogs fell to 54.9 from 63, while the employment index increased to 49.1, the highest level since December, from 39.2 a month ago.

The group's inventories index dropped to 37.7, the lowest since February 2002, from 52.2.

The purchasing managers' measure of prices paid for raw materials increased to 80.7 from 80.6 in August.

Manufacturers such as Xerox Corp., the world's largest maker of high-speed color printers, are seeing weaker demand as companies rein in spending amid tighter credit conditions.

``We are seeing a slowdown in Xerox North America,'' President Ursula Burns told reporters at an event in Lisbon Sept. 26. ``Corporate clients are more cautious, but we are seeing strong signs from our services business.''

Second-Half Slump

Economists monitor the Chicago index for an early reading on the outlook for U.S. manufacturing, which makes up about 12 percent of the economy.

Manufacturing in the U.S. probably contracted in September for a sixth time in nine months, economists project a report tomorrow will show. The Institute for Supply Management's factory index probably dropped to 49.5 from 49.9 in August, according to the survey median.

In the second quarter the economy expanded at a 2.8 percent annual pace, slower than the prior estimate of 3.3 percent, as consumer spending contributed less to growth, the Commerce Department said last week.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net