Red Flags From Factories

As soon as Christmas was over,investors sat down and reviewed economic reports.The first to be scrutinized was the U.S. Commerce Department's Durable Goods report.Orders for these costly items,which are expected to last at least three years,rose just .1%,when they were expected to rise 2.2%.The factories report was down .7%-the second straight monthly decline.Capital goods ex-aircraft fell .4%,while business capital spending dropped .9%.These figures all indicate that businesses are being more cautious in capital spending.They aren't investing as much in the equipment that helps them grow.Next to be reviewed were the Institute for Supply Management's Purchasing Managers surveys.The Manufacturing Index fell to 47.7 in December from 50.8 in November.A number below 50 indicates the sector is contracting.It was the worst reading in five years.New orders plunged to 45.7 from 51.9.Production fell to 47.3 from 51.9.These results show that even strong exports aren't working anymore.Factories are feeling the credit crunch and flattening profits due to higher costs,as domestic businesses cut back on investments or put them off.Indeed,according to Morgan Stanley(MS),global manufacturing fell .8 to51.4-the lowest level in more than four years.Manufacturing was down in Canada,the U.K. and the Euro Zone.Finally,the busy investors pored over the U.S. employment report that was released last Friday.Unemployment rose to 5% in December from 4.7% in November-the steepest increase since the recession of 2001.An uptick of that magnitude is characteristic of recessions.New jobs created totaled a mere 18,000-the least since 2003.Small wonder that the investors saw red flags on the factories,or that many of them looked to bond funds such as Vanguard's Total Bond(BND) and iShares Lehman Brothers TIPS fund(TIP),or the TIAA-Cref Instit MMF/Retail,which offered the highest 12-month yield for a taxable money market fund in 2007,at 5.19%.