In another indication of just how quick the downturn in the economy has been, the January Business Outlook Survey from the Philadelphia Federal Reserve Bank showed a sharp decline in manufacturing activity in Pennsylvania, New Jersey and Delaware. The regional survey is considered a good forward indicator on the National Association of Purchasing Management's Purchasing Manager's Index, which comes on the first business day of each month.

The Fed's index of current manufacturing conditions fell 4.2 points to -36.8 in January, its lowest reading since Dec. 1990, when the country was in recession. Any reading below zero signals a contraction in manufacturing activity. The future manufacturing index, based on manufacturers' forecast of what business will be like in six months, fell 4.2 to -16.3, the lowest reading since Sept. 1990.

"There's no doubt you have to respect the message," says Bill Sullivan, senior economist at

Morgan Stanley Dean Witter

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. Because the survey has offered a good early read on manufacturing activity over the past year or so, it "clearly suggests that the manufacturing sector can be seeing additional retrenchment."

The survey also ups the chances that the

Federal Open Market Committee will cut interest rates by a half-point, rather than a more gradualist quarter point, at its meeting at the end of the month. Because of the speed with which the economy has apparently cooled, the FOMC has become much more reliant on anecdotal information on the economy. The harder economic data often carries too much of a lag time.

The survey "shows a very, very anxious outlook for manufacturers," says Sullivan. "That defensiveness could easily ripple over into other parts of the economy. We have to be vigilant, and so does the Fed."