A rash of dismal data Monday underscored economists' fears that the nation is falling into a deep recession, with manufacturing plummeting, banks pulling back on consumer and business loans and construction spending dropping.
Of particular concern is a sharp decline in export orders for U.S. goods, which had been a bright spot in the economy. Global demand is slowing as foreign economies falter and the U.S. dollar rises against other currencies.
"The plunge in new export orders to a new all-time low raises concerns that the only remaining area of strength for the U.S. economy might also collapse," said Harm Bandholz, economist at UniCredit Markets.
U.S. manufacturing activity sank to the lowest level in more than 26 years in October as orders, production, employment and exports all declined, the Institute for Supply Management said Monday.
The ISM index of factory activity was 38.9 in October, down from 43.5 in September and the lowest since September 1982, when the economy was in one of the longest recessions in the post-war period. A reading below 50 points to contraction. "October was the month in which the manufacturing sector came off of its pedestal," says Norbert Ore, head of the ISM survey.
In a second report, the Federal Reserve said about 85% of domestic banks had tightened standards for business loans to large and midsize firms in the past three months, up from 60% that reported doing so in a July survey. About 75% of lenders toughened criteria for lending to small firms during the most recent quarter, while about 85% set higher standards for commercial real estate loans.
Businesses weren't the only ones finding credit hard to come by. Nearly 60% of lenders toughened up credit card lending, while almost 65% raised the bar for other types of consumer loans during the past three months.
Tighter credit was a big reason that construction activity weakened in September. The Census Bureau said construction spending declined 0.3% from August and 6.6% from a year ago. Housing continued to tumble. Non-residential building eked out a slight gain; that is expected to change.
"Credit has been very hard to pry loose from banks," says Kenneth Simonson, chief economist at the Associated General Contractors of America. "A lot of projects that contractors thought would be coming on line now have been put on hold."