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During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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WSJ: Factory Activity Plummets


Just as manufacturing was beginning to show signs of recovering from its yearlong slump, the Sept. 11 terrorist attacks slammed it back into an even deeper recession.

The National Association of Purchasing Management said its index of manufacturing activity plummeted to 39.8 in October, its lowest level since the depths of the 1990-91 recession. It stood at 47 in September. The index measures how broadly manufacturers are sensing strength or weakness; a level below 50 indicates a contraction in manufacturing.

The drop, one of the largest since the index began in 1931, paints a dire picture of the long-suffering industrial sector and raises the risk that the overall economy will experience a deeper recession than economists now expect.

Before the terrorist attacks, "Interest rates were coming down, everything was shaping up exactly as a business cycle was supposed to, and by November or December, we could have been in growth mode in manufacturing," said Norbert Ore, chairman of NAPM's business survey committee. "This event discontinues the previous cycle, and starts a new cycle."

In the past, he said, it has taken months for manufacturing to recover from event-driven drops, such as the one following the Cuban missile crisis in 1962.

October's report is one of the first to offer a clear picture of the post-attack economy. Most troubling, its sub-indexes for production and new orders, the most important indicators for manufacturing health, both plunged to contractionary levels in October after registering growth in both August and September.

While economists think the economy is now in recession -- a view supported by Wednesday's report that inflation-adjusted gross domestic product fell at a 0.4% annual rate in the third quarter -- they had expected it to be short and mild, with the economy growing again by early next year. The purchasing managers' report shows "something more than a mild recession," said Anirvan Banerji, research director of the Economic Cycle Research Institute in New York....
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