* Factory activity slows in January to eight-month low
* New orders post largest decline in 33 years
* Top three U.S. auto sellers report slide in sales
* Construction spending barely rises in December
* Reports point to loss of momentum, weather a factor
By Lucia Mutikani
NEW YORK, Feb 3 U.S. manufacturing activity
slowed sharply in January on the back of the biggest drop in new
orders in 33 years while construction spending barely rose in
December, pointing to some loss of steam in the economy.
Economists largely blamed frigid temperatures for the chill
in economic activity and said they expected a rebound in the
months ahead. However, they also cautioned that the economy was
receiving some payback after a strong performance in the second
half of 2013.
"The disappointing data provide further confirmation of a
dramatic slowing in economic growth momentum," said Millan
Mulraine, deputy chief economist at TD Securities in New York.
The Institute for Supply Management (ISM) said its index of
national factory activity fell to 51.3 last month, its lowest
level since May 2013, from 56.5 in December.
Bad weather also appeared to hurt U.S. auto sales in
January, with Ford Motor Co, General Motors Co and
Japan's Toyota Motor Sales USA reported a slide in
sales for the month.
U.S. stocks fell sharply on the manufacturing data, with the
Dow Jones industrial average off 1.5 percent and the S&P
500 losing 1.7 percent. The yield on the benchmark
10-year Treasury note hit its lowest level since early November
and the dollar dropped against a basket of currencies.
Mulraine, however, said "to the extent that this weakening
can be attributed to weather-effects, we expect activity to
rebound meaningfully in the coming months."
January's ISM figure was also well below the median forecast
of 56 in a Reuters poll of economists, missing even the lowest
estimate of 54.2. Readings above 50 indicate expansion.
It was the second straight month of slowing growth from
November's recent peak reading of 57, which had been the highest
since April 2011, and indicated manufacturing was slowing after
output grew at its fastest pace in nearly two years in the
Underscoring the weather impact, delivery delays increased a
bit last month, but the biggest red flag was the huge drop in
the forward-looking new orders index, which fell to 51.2 from
64.4 in December. That 13.2-point drop was the largest monthly
decline in the key component since December 1980.
"While the magnitude of the decline in the ISM index may
have exaggerated the degree of cooling in the underlying pace of
factory activity, it reinforces our belief that the optimism
surrounding a burst of capital investment in 2014 is overdone,"
said Michelle Girard, chief economist at RBS in Stamford,
Economists also noted that the ISM survey had been running
too strong relative to other factory indicators.
SLOW FIRST-QUARTER GROWTH EYED
In a separate report, the Commerce Department said
construction spending rose 0.1 percent in December, slowing from
the prior month's 0.8 percent increase.
While private construction spending hit a five year high,
outlays on public construction projects recorded their biggest
drop in a year, reflecting the drag from weak state and local
The soft construction spending data will probably not have
much effect on the government's advance fourth-quarter gross
domestic product estimate as it was broadly in line with
The government reported last week that the economy grew at a
3.2 percent annual pace, supported by consumer spending, exports
and inventory accumulation, after logging a 4.1 percent rate in
the prior quarter.
It expanded at a brisk 3.7 percent pace in the second half
of the year, up sharply from 1.8 percent in the first six months
of the year. It was the biggest half-year gain since the second
half of 2003.
Exports are not expected to match their strong growth and
businesses are expected to step back from restocking. When added
to the impact of cold weather, that suggests a slowdown in first
quarter growth is in the cards, analysts said.
Indeed, the ISM survey showed a pullback in new export
orders and a contraction in inventories.
"An earlier pickup in manufacturing production and inventory
building in the second half of 2013 is slowing down," said Ryan
Wang, a U.S. economist at HSBC in New York.
The prices index hit an 11 month high. Economists, however,
said that was mostly energy-related after the cold snap caused a
shortage of propane and pushed up prices for electricity and
heating oil in some parts of the country.
An indicator of employment fell to its lowest level since
June. Economists said that posed a downside risk to expectations
of a rebound in employment in January after a surprise slowdown
January's employment report will be released on Friday and
is expected to show nonfarm payrolls rebounded to 185,000 in the
month from 74,000 in December, according to a Reuters survey.