US factory activity shrank in November for the first time in 3 years as new orders, production and employment fell and prices paid rose, according to a survey published today.
The data were seen as further evidence of slowing growth in the US economy, which could force the Federal Reserve to cut interest rates in the first quarter of 2007.
The Institute for Supply Management said its index of national factory activity dropped to 49.5 from 51.2 in October, below economists' median forecast for a slight rise to 51.5.
This was the first time that the index had fallen below 50 since April 2003, when a reading of 46.5 was recorded.
A reading below 50 indicates shrinkage in the factory sector. "I think this number will definitely continue to fan fears of a hard landing for the US economy.
Overall, this is consistent with the view that the US economy is moderating and could prompt a Fed rate cut in 2007," said Omer Esiner, a senior analyst at Ruesch International in Washington, DC Government bonds rallied on the data, with the yield on the benchmark 10-year note falling to a fresh 10-month low of 4.41 per cent.
Yields move inversely to prices. Federal funds interest rate futures indicated that markets are pricing in a 64 per cent chance of a Fed rate cut in the first quarter, up from 52 per cent factored in before the data.