In November, manufacturing in the U.S. shrank for the first time in the past three years as it buckled under weight from a strong U.S. dollar and the deep cuts in spending by firms directly or indirectly involved in energy.
However, a robust month of automobile sales has suggested the economy was still on very solid ground.
Other data released on Tuesday showed a strong increase in spending in the construction industry during October, which will likely help offset drag form manufacturing on growth in the fourth quarter.
Manufacturing only accounts for about 12% of the overall economy therefore, analysts say it is not likely a persistent weakness will stop the Federal Reserve from increasing its interest rates during this month.
The Institute for Supply Management announced that its national factory index had dropped in November to 48.6, which is its weakest reading since June of 2009, when the recession just ended. The October reading had been 50.1. A reading that is less than 50 indicates shrinkage in the sector while it remains over 43.1, which is linked to a recession.
Factory activity was undercut as well by efforts of business to lower an excessive build up of inventory, which was putting pressure on their new orders. The ISM said the gauge of new orders fell by 4 points last month to 48.9.
Inventories in manufacturers continued shrinking and customers reported that stocks of goods unsold were too high for the fourth straight month.
Ten of 18 manufacturing industries, which included apparel, primary metals, machinery, appliances, components, electrical equipment, and computer products, reported shrinkage in November.
Manufacturers said dollar strength, slower European and Chinese growth and lower prices of oil were headwinds during the month.
Recent data on spending plans of business capital and factory output offered hope the worst of the woes of this sector were ending.
However, with sales of automobiles and spending in construction remaining strong early in the final quarter, economists expect the gross domestic product to grow at an annual pace of approximately 2%, which is nearly matching the pace for the third quarter.
Early reports on Tuesday showed strong sales growth for autos during November with SUVs and light pickups being snapped up thanks to incentives and discounts offered by the dealers.