The final month of 2007 found economic activity in themanufacturing sector failing to grow following 10 consecutivemonths of expansion, according to the latest Manufacturing ISMReport on Business from the Institute of Supply Management inTempe, AZ. By contrast, the overall economy grew for the 74thconsecutive month.

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"The recent trend has been toward slower growth," notes NorbertJ. Ore, chair of the institute's supply management manufacturingbusiness survey committee. "However, December was apparently a verytough month as new orders, production and employment were all belowthe break-even mark of 50%."

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Ore says industries close to the housing market appear to bestruggling more than others, while those involved in exports seemto be doing better. He adds that slower demand appears to be moreof a problem than excessive inventories, judging from comments fromsupply executives, whose responses to an ISM survey formed thebasis of the report.

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Industrial production was also flat in December, while outputfor the full quarter actually declined by 1%, using an annualizedrate, reports Brian Bethune, an economist with Global Insight (USA)Inc. in Lexington, MA. He says a rise in output for industries suchas computers and aerospace that have a "wide exposure to export"was offset by output reductions for industries such as motorvehicles, furniture and construction supplies that rely primarilyon domestic consumption.

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The December report from Manufacturers Alliance/MAPI inArlington, VA came to similar conclusions, though it indicatesmanufacturing production fell at an annualized 1.9% rate in Q4.Moreover, it points out that when high tech is excluded, theannualized rate of decline was a full point higher at 2.9%.

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"We believe that the report confirms that manufacturing is inrecession," says Daniel J. Meckstroth, the organization's chiefeconomist. "Strong growth in exports can only cushion, not prevent,the quarterly decline in manufacturing. General growth in exportsand a few bright spots cannot mitigate weak consumer spending andincreasingly slow and cautious business investment activity."

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Bethune does think manufacturing is "struggling to keep its headabove water," but he's reluctant call the industry's current statea recession. "It depends which lens you're looking through," heexplains. "There are certainly some industries that are inrecession, like building materials and construction machinery. Butthere are others that are doing quite well. Boeing, for example,has a two or three-year backlog of orders."

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On the negative side, Bethune says domestic demand continues tobuckle under the weight of the two-year-old housing recession andconsumer moods continued to deteriorate in January, signaling veryweak first quarter for consumer growth. "It's a situation where theweight of housing and building materials is starting to be enoughto bring the balloon down, but at least from what we've seen sofar, it's a gentle-down motion," he tells GlobeSt.com.

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On the positive side, he says inventories are lean and exportdemand is still fairly robust, making a precipitous drop unlikely.Nonetheless, he acknowledges a more widespread manufacturingrecession is possible if the current situation scenario persists."If the Fed brings rates down, if Congress takes action, we shouldbe OK," he says. "So let's wait to see what they do. By February weshould have a better line of site."

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