NEW YORK -- For those wondering if the economy is headed for a soft or hard landing, yesterday's news on manufacturing hit with a thud.

For the first time in almost four years, the manufacturing sector shrank, according to a widely watched survey, and the implications could reach into other parts of the economy.

Now, markets are pondering whether the Federal Reserve, which has kept interest rates steady since August, will have to lower them sooner than many had expected, as the slump in housing and autos spreads to manufacturing, jobs and consumer spending.

The Institute for Supply Management, a trade group based in Tempe, Ariz., said its manufacturing index came in at 49.5 in November, behind October's reading of 51.2. A reading below 50 indicates the sector is contracting; the reading had come in above 50 since June 2003.

The index was one of two troublesome economic reports that pushed stocks down yesterday, though a late rally pared most of the losses. The Commerce Department said construction activity in October plummeted by the largest amount since 2001, and that home building fell for the seventh month in a row, the longest decline on record.

The ISM and the construction spending reports could be more pieces of the economic puzzle that may guide the Fed to either keep interest rates level, or perhaps cut short-term interest rates sooner than analysts were expecting. The Fed raised rates for the 17th consecutive time in June, but have held them at 5.25 percent since then.

The government also will be considering next week's service sector report from the ISM. While the service sector has outperformed the manufacturing sector in recent months, and grew more quickly than analysts expected in October, Wall Street is expecting to see slower growth in the November reading.

The manufacturing downturn "does not mean the economy is going to go into a recession," said Zoltan Pozsar, an economist at Moody's Economy.com. The U.S. construction and auto industries may have pushed the ISM down, but at most, they make up a third of the industrial base, he noted.

"Orders and production will be soft going into next year" but will firm up once excess inventory is worked off, he said.

But Mr. Pozsar also said the contraction would have a very real impact on employment. He estimated 30,000 jobs were lost in housing-related industries in November and another 300,000 will be lost in the coming year, on top of 100,000 housing jobs lost since March.

"The job market seems a lot weaker than it was a year ago, which points to soft holiday shopping," Mr. Pozsar said, a trend he expects to intensify as the housing slump translates into people feeling less wealthy than when prices were high.

As for manufacturing, the ISM report also showed employment slipping and prices rising -- a double-whammy for the sector and its workers.

Timothy Tumanic, president of J&R Machine Inc., a Shawano, Wis.-based maker of snowplow components and other parts, said problems in the auto industry trickled down to hurt his company's business in the third quarter.

One of the company's largest customers, a snow plow maker, cut orders because of falling truck sales, but Mr. Tumanic said he expected orders to rebound early next year with truck sales. "Someone who goes out and buys a new truck goes out and buys a new snow plow," he said.

Signs pointed to continuing weakness in the U.S. auto industry yesterday, with Ford Motor Co. saying its sales sank again in November, allowing Toyota Motor Corp.'s to surpass it for the second time ever. Earlier in the week, Ford said nearly half of its unionized U.S. work force agreed to early retirement or buyout packages. GM is cutting nearly a third of its U.S. hourly workers.

On the construction front, the Commerce Department reported that building activity dropped 1 percent in October after a smaller 0.8 percent drop in September. It was the biggest decline since September 2001, when the 9/11 attacks compounded a recession. Residential construction fell 1.9 percent, the biggest decline since July. Nonresidential construction dropped for the second straight month.