Will Wednesday’s Manufacturing News Induce Another Rate Cut?

The New Year kicked off to a bleak start with news that U.S. manufacturing fell for the first time in 10 months in December, hitting its lowest point since 2003, according to a report released today by the Institute for Supply Management.

The private research group’s manufacturing index–which The New York Times says is considered a leading indicator of recession– fell from 50.8 in October to 47.7 in November. Readings over 50 indicate growth.

Stocks fell almost immediately when the report was released.

The good news: For once, the disappointing report isn’t about housing! The bad news: Well, it actually really is about housing.

Manufacturing, thanks to foreign investment (lucky for us, other economies around the world, unlike ours, are on the rise), helped the U.S. economy weather its many strains in 2007–inflation risk, declining job growth, sinking home values and more.

If manufacturing drops, we’re likely to feel the impact of those economic stresses more acutely. At a time when oil prices are at their highest level in two months and the dollar just keeps getting weaker, a decline in export demand is the last thing we need.

The notion that U.S. business may be weakening just adds fuel to the recession fire–and, sadly, cancels out any strains of hope the industry felt this morning when the Commerce Department announced that construction spending (despite declining residential building, of course) had increased slightly in November.

The Fed released the notes from its last meeting–held on Dec. 11–today. The notes reveal that the Fed, too, has lowered its expectations for growth in 2008, saying its outlook was for a "somewhat more sluggish” economy than the bank had thought in October.

The quarter-point cut announced after that meeting was a disappointment to many investors who had hoped for a larger cut–prompting the largest post-Fed decision stock sale since Chairman Ben Bernanke took office in 2006, according to Bloomberg.

The Fed’s next meeting is scheduled for just a few weeks from now on Jan. 29. Many economists had predicted a rate cut would be announced; the Times says that, given recent news, it’s now even more likely.

But will the Fed offer a rate cut–and if so, how much? Post and share your theories below. We’ll share ours tomorrow…