Activity at the nation's manufacturing firms declined last month for only the second time since the 2001 recession, as many executives trimmed production, delayed placing orders and held back on hiring, according to a new economic report.

The Institute of Supply Management's monthly survey of factory conditions, released yesterday, said its index of manufacturing activity fell to 46.2 -- well below the reading of 50 at which the sector is neither expanding nor contracting -- from 50.5 in February and higher numbers in both January and December. Norbert Ore, the executive who heads the survey committee, said in an interview that the results clearly reflected war worries.

The latest figure was still consistent with a growing economy rather than recession, the institute noted. But the drop was more severe than analysts had been expecting. Some said the report, among the earliest indicators of how the economy performed last month, raised new concerns about where the economy is headed, and it prompted some to predict the Federal Reserve would be forced to cut interest rates again soon, perhaps at a scheduled May 6 policymaking session.

Several Federal Reserve officials have blamed the host of uncertainties spawned by the prospect of war as the key reason for economic growth remaining persistently weak this year. As a result, many Fed watchers still expect the central bank to wait to see additional data covering the period after March 20 when the war began before taking any action.

Ore, an executive of the Georgia-Pacific Corp. in Atlanta, noted that the results released yesterday covered decisions made by manufacturing firms before the war started. "Manufacturers tend to react to the anticipation of an event more than to the event itself," Ore said. "The threat of war was factored into the February and March numbers. . . . It was like everybody took a deep breath and held it. They deferred ordering and production, and they burned up some inventory."

But with the war now launched, Ore said, "I think we will get a bounce in April or May. Unless there is some really strong message that comes out in the next couple of days, you will see April comes back."

Whether it happens this month or later, some Federal Reserve officials are also looking for something of a bounce in the economy before long.

In a speech in Baltimore Monday evening, J. Alfred Broaddus Jr., president of the Richmond Federal Reserve Bank, acknowledged that as a nation "we seem to be entering the war with Iraq on a relatively soft economic footing."

While he said "no one knows" where the economy is heading, Broaddus's own "guess" is that "the recovery is solid enough to withstand the shocks it is currently experiencing and to accelerate moderately as the year progresses. If the war were to last significantly longer and be more difficult than expected, and there were a sustained sharp increase in oil prices, obviously the recovery could be undermined."

A far more negative assessment came yesterday from economists at J.P. Morgan Chase & Co., who predicted that the Fed would cut its already very low 1.25 percent target for overnight interest rates by a half-percentage point by the middle of the year. The prediction was made, the bank said in a statement, partly in response to the manufacturing report and other business surveys, both in this country and abroad, in which declines have been "more severe than expected."

In addition to such reports, "thus far, there is scant evidence that consumer spending is rebounding following a February slide that was exaggerated by winter storms. . . . Activity will need to pick up in the coming two months to track even JP Morgan's forecast of modest a 1.5 percent rate of growth" in the April-June period, the statement said.

On a brighter note, automakers said sales of cars and light trucks made in North America rose last month to 12.7 million from 12.1 million in February. The sales pace was better than expected; nevertheless, General Motors Corp. and DaimlerChrysler this week announced new purchase incentives, including extension of no-interest loans and cash rebates.

Also yesterday, the Institute of International Finance, an organization of more than 300 mostly large banks operating internationally, forecast that the world's seven major industrial countries -- the United States, Japan, Germany, France, Britain, Italy and Canada -- would grow only 1.9 percent this year, only slightly more than in 2002. The group urged the countries' central banks, including the Fed, to cut interest rates to spur growth.

Meanwhile, a series of surveys published yesterday in Europe dropped to very low levels. In France, for instance, a consumer confidence index dropped to what Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., called "an epochal low."

"There is nothing in any of these [European] reports to refute the view that economic recovery is nowhere in sight," he said.

"The suddenness with which the Euroland economies have fallen into disarray is startling, to say the least."