US manufacturing crash adds to global gloom

US factory activity contracted sharply last month, falling to its lowest in 26 years as the financial crisis ravaged the world’s largest economy and its trading partners around the globe.

The one bright spot in the report was that its main gauge of inflation, the prices paid measure, recorded its biggest one-month drop ever. This should allow the Federal Reserve to keep interest rates low to fight off what many fear will be a deep recession.

“Pretty grim. It means we’re in a recession, it’s as simple as that ... a pretty solid manufacturing recession,” said Robert Macintosh, chief economist at Eaton Vance Corp in Boston. “The question is, ‘How long or deep is it going to be?’”

The Institute for Supply Management said its index of national factory activity fell to 38.9 last month from 43.5 in September. That was well below the 50 level separating contraction from expansion, and a reading below 40 is exceptionally weak.

Economists had expected a reading of 41.5, according to the median of forecasts in a Reuters poll.

Monday’s data came a day before the US presidential election and adds to the load of evidence indicating that whoever wins will face a monumental task in getting the economy back on track.

The reports followed news that the eurozone is already in a technical recession and growth will come to a virtual standstill next year, according to the European Commission, which called for coordinated European Union action to support growth.

However, October’s report showed new export orders contracted, ending 70 consecutive months of growth, the ISM said.

In fact, the report was uniformly weak, and employment in the sector was dismal. The ISM’s gauge of employment suffered its biggest one-month drop in 20 years and fell to its lowest since March 1991.

The data foreshadowed a grim outlook, with the index of new orders hitting its lowest since 1980.

“Usually when we see new orders drop significantly it’s not a one-month event,” Norbert Ore, chairman of the Institute for Supply Management’s manufacturing business survey committee , said on a conference call with reporters. “It will take a while for the correction to take place.”