In the US, the Commerce Department reported factory orders fell 3.9% in December, marking the fifth consecutive month of decline. The downturn followed a 6.5% decline in November. According to the Institute for Supply Management in Tempe, AZ, measures of production and new work received fell at the fastest rates in the 61-year history of the organization's national survey. Moreover, the institute says the poor performance continued into January, as economic activity in the manufacturing sector failed to grow for the 12th consecutive month and the overall economy contracted for the fourth consecutive month.

However, Norbert J. Ore, chair of the institute's Manufacturing Business Survey Committee, points out that the rate of decline as measured by the PMI was slower in January than in December. In addition, the January New Orders Index was at 33.2%, up from the seasonally adjusted 23.1% recorded in December, the lowest level on record.

"While this is a significant month-over-month improvement, it is still a sign of continuing weakness in the sector," he says. "Comments from our respondents indicate that it will take a recovery in automobiles and housing for the manufacturing sector to once again prosper." On a positive note, he adds, the Prices Index continues to indicate significant deflation in the prices that manufacturers have to pay for their inputs, which he says should ultimately be good for the consumer.

The outlook for European manufacturing appears equally grim. According to the winter '09 Business Outlook Survey from the London office of KPMG, which surveys over 3,700 manufacturing firms across the European Union, confidence in the sector has collapsed in the face of the global economic downturn. The survey says EU manufacturers' confidence regarding the outlook for business activity over the next 12 months has retreated swiftly from six months earlier, with the net balance falling into negative territory for the first time since the survey began in January '06. The latest net balance figure of -10.2 contrasts markedly with the high of +56.3 recorded two years ago, while the remaining ten survey variables all posted record lows and negative readings. Anecdotal evidence from the latest survey highlighted deteriorating economic conditions as the main threat to business revenues, along with a resulting downturn in orders.

Of the 11 countries included in the survey, the Czech Republic and Greece posted the worst expectations for business activity, revenues and new orders, while the UK, Italy and Poland all registered marginally positive net balances for business activity but negative readings for business revenues, suggesting aggressive discounting to retain volumes of sales.

Commenting on the latest survey findings, KPMG chief economist Andrew Smith says, "The downturn in sentiment reinforces the emerging picture of a prolonged and painful recession in the EU manufacturing sector. Profits are set to decline as demand weakens and businesses cut prices to boost sales volumes, even if cost pressures are now subsiding. Consequently, the outlook for both investment and unemployment has deteriorated significantly."