Manufacturing index drops to 26-year low

The Institute for Supply Management's index of manufacturing activity for November fell to 36.2 from October's 38.9. The reading was worse than Wall Street economists' expectations of 38.4, according to a survey by Thomson Reuters. A figure below 50 indicates the sector is contracting.

The November reading is the lowest since May 1982, the Tempe, Ariz.-based ISM said. The report is based on a survey of corporate purchasing managers.

The report came the same day that the National Bureau of Economic Research, a private group, said the U.S. economy has been in a recession since December 2007.

By one benchmark, a recession occurs when the economy's output declines for two straight quarters. But the bureau's dating committee uses more precise measures that include employment, personal income and industrial output.

The stock market reacted badly to the gloomy economic reports and the official finding of a recession. The Dow Jones industrial average sank nearly 680 points, or 7.7 percent.

Economists said the manufacturing survey showed that the U.S. economy is in a steep recession and that tough times will continue for manufacturers. It "points to one of the deepest contractions in industrial output in the post-World War II era," wrote Michael Feroli, U.S. economist at JPMorgan Chase & Co. Inc., in a research note.

Exports, a key source of strength for manufacturers over the past couple of years, are no longer a bright spot as major economies in Europe and Asia also slow.

The ISM's index of new export orders remained at 41, the same as in October and the lowest reading since 1988. That's down from 57 as recently as August.

"Rapid export growth was a crucial support to the economy for most of this year," said Nigel Gault, chief U.S. economist for IHS Global Insight. "That key prop is now being knocked away as a global recession takes hold."