Manufacturing in U.S. unexpectedly contracted as orders slowed

Beige Book

Seven of 12 Fed districts reported “either slowing or outright contraction in manufacturing,” the central bank said last week in its Beige Book business survey, which reflected information collected before Nov. 14. The Cleveland, Richmond and St. Louis areas said business was positive.

Apart from the storm’s impact, uncertainty surrounding the so-called fiscal cliff of about $607 billion in automatic tax increases and spending cuts slated for 2013 if lawmakers fail to act is leading businesses to curb investment. Five of 12 Fed districts expressed concern about next year’s outlook, partly due to the lack of clarity about the budget, the report said.

Business spending on equipment and software fell 2.7 percent at an annual rate in the third quarter, the first drop since the expansion began in mid-2009. Capital spending has decelerated for four quarters.

Fewer Exports

There’s also risk overseas demand for U.S-made goods will slow further. The euro-area economy hasn’t expanded for a year, and China’s economic growth has slowed for seven quarters.

“Business levels are not bad,” Jerald Fishman, chief executive officer at chipmaker Analog Devices Inc., said on a Nov. 27 call with analysts. Still, “there’s so much uncertainty out there in Europe and the U.S.”

Fishman said that because of a lack of clarity on government tax policies, “people are just standing still and that impacts their capital spending budget.”

Bloomberg News

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