Consumers cut spending to lowest level in 15 years

WASHINGTON -- Jarred by terror attacks, consumers put away their wallets and credit cards as spending dropped by the largest amount in almost 15 years. Manufacturing plunged, too, as evidence increased that economic fallout from the attacks pushed the country into recession.

Before the attacks, consumers, whose spending accounts for two-thirds of all economic activity, had been the main force keeping the economy afloat for more than a year. But spending declined by 1.8 percent in September.

With consumers ratcheting back spending, manufacturers in October turned in their worst performance since February 1991, when the country was mired in its last recession.

The National Association of Purchasing Management said manufacturing activity sank to 39.8 from 47 in September, the 15th consecutive month of decline. An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction.

Manufacturers have been hardest hit by the economic slump. To cope with sagging sales, factories have sharply cut production and slashed 1.1 million workers from payrolls in the last 14 months.

Unexpected damage level

The latest batch of economic news released Thursday showed the damage inflicted by the attacks was worse than many analysts had expected. Economists believe the economic picture is likely to get worse before it gets better.

"Consumers and businesses alike are frozen by recent events into inaction," said Ken Mayland, economist with ClearView Economics. "Everybody is waiting to see if there will be another shoe to drop, and how everyone else will behave."

Economists fear that continued fallout from the attacks, new worries about anthrax in the mail, plunging consumer confidence and the specter of rising unemployment in the months ahead, will keep consumers tightfisted, further weakening the economy.

The economy shrank at a rate of 0.4 percent in the July-September quarter and economists are forecasting an even bigger drop in the October-December quarter. A common definition of a recession is two consecutive quarters of declining economic output.

Spending on durables -- costly manufactured goods expected to last at least three years, such as cars and washing machines -- fell by a sharp 3.2 percent in September.

For services, spending dropped by 1.8 percent, the biggest decline since the government began record-keeping in 1959. Spending on nondurables, such as clothes and foods, declined by 1.3 percent, the largest drop since March 1993.