Manufacturing in the New York region contracted in January for the sixth straight month as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas.
The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December. The median forecast of 54 economists in a Bloomberg survey called for a reading of zero, which signals no change in conditions. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.
Weakness in manufacturing is holding back the economic expansion, damping the effects of advances in housing and household spending that are contributing to growth. On Jan. 1, Congress and President Barack Obama reached an agreement on taxes and spending after a protracted standoff that had caused some companies to hold back on investment. The pact calmed some so-called fiscal cliff worries even as it triggered a higher tax bill for American workers and left policy makers with more budget cutting to do.
“The manufacturing sector in general has been stuck in neutral for several months now,” said Thomas Simons, an economist with Jefferies Group Inc. in New York, who had forecast an improvement in the Empire index to minus 2. “It still hasn’t shown any progress. We’re still stuck in the mud here.”
Consumer Confidence Cools as U.S. Jobless Claims Rise
Confidence among U.S. consumers fell to a six-week low and claims for jobless benefits rose more than forecast, highlighting the risks to the economy posed by federal government budget cuts.
The Bloomberg Consumer Comfort Index dropped to minus 34.4 in the week ended March from minus 33.9 as Americans’ views of the economy deteriorated to the lowest point since early February. Applications for unemployment insurance benefits rose by 16,000 to 357,000 last week, the Labor Department said.
The figures represent a blemish for an economy that has shown signs of strengthening on the heels of a housing market rebound and a pickup in manufacturing. Federal Reserve policy makers are concerned the automatic reductions in government spending that began this month may impede the progress of the expansion after a fourth-quarter slowdown.
“There will be some impact from the sequester, and certainly the second quarter should look somewhat softer than the first quarter,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities in New York. At the same time, “it’s domestic growth that’s driving the economy -- it’s housing, it’s consumer spending, it’s business consumption.”
Stocks rose, sending the Standard & Poor’s 500 Index to an all-time high and wiping out losses from the financial crisis, as concern eased about Europe’s debt crisis. The S&P 500 climbed 0.4 percent to 1,569.19 at the close in New York.
The economy in the U.S. grew at a faster pace than previously estimated in the fourth quarter, reflecting a bigger gain in business spending and a smaller trade gap, a report from the Commerce Department showed today. Gross domestic product rose at a 0.4 percent annual rate, up from a 0.1 percent prior estimate and following a 3.1 percent gain in the third quarter.
Elsewhere, German unemployment unexpectedly rose in March. The number of people out of work increased a seasonally adjusted 13,000 to 2.94 million, the Nuremberg-based Federal Labor Agency said today. The adjusted jobless rate held at 6.9 percent, close to a two-decade low of 6.8 percent.
In China, profits at industrial companies jumped 17.2 percent in the first two months of the year, extending a four- month streak of gains and bolstering a rebound in the world’s second-biggest economy.
Another report showed U.S. business activity expanded in March at a slower pace than forecast. The MNI Chicago Report’s barometer fell to 52.4 this month, the lowest level of the year, from 56.8 in February. A reading greater than 50 signals expansion. The median forecast of 48 economists surveyed by Bloomberg was 56.5.
Manufacturing Cools in U.S. as Government Cuts Loom
Manufacturing grew less than forecast in March as orders and production cooled, highlighting the risk of a U.S. economic slowdown this quarter as federal budget cuts take effect.
The Institute for Supply Management’s factory index fell to 51.3 from an almost two-year high of 54.2 in February, the Tempe, Arizona-based group’s figures showed today. A reading of 50 is the dividing line between growth and contraction. Another report showed construction spending climbed in February, led by the strongest home-building outlays in more than four years.
The manufacturing report showed housing- and auto-related industries outpaced other areas last month, a sign consumer spending is bolstering the expansion, while exports grew at the fastest pace in almost a year. At the same time, a failure to reach compromise on ways to reduce the debt triggered $85 billion in across-the-board federal spending cuts on March 1, giving factories reason to take a guarded approach.
“The manufacturing outlook is positive, broadly, with a couple of cloudy areas,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, whose ISM forecast was the closest among those surveyed by Bloomberg. “It highlights the downside of reduced government spending but underscores a fairly stable private sector.”
Stocks fell as manufacturing slid, pulling the Standard & Poor’s 500 Index lower after reaching a record high last week. The S&P 500 dropped 0.5 percent to 1,562.17 at the close in New York.
Elsewhere today, confidence among big Japanese manufacturers in March improved less than economists estimated as companies said they’ll cut investment by the most since the global recession. In China, manufacturing expanded at a faster pace last month, indicating the world’s second-largest economy is stabilizing.
Another U.S. report today highlighted the risk from the budget reductions. Spending on construction projects rose 1.2 percent in February, paced by the highest level of homebuilding in more than four years, according to figures from the Commerce Department. The data also showed federal outlays were the only weak spot, falling in February for a second consecutive month.
“The upturn in housing starts is translating to a greater increase in outright expenditures, which is adding to GDP growth,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York, who correctly projected the gain in construction spending. “You’re still seeing a slightly upward trend. The increase was driven by single-family construction.”
Initial Jobless Claims in U.S. Rise Less Than Forecast
Fewer Americans than forecast filed first-time claims for unemployment insurance last week, a signal the U.S. labor market is maintaining its recent progress.
Applications for jobless benefits increased by 2,000 to 336,000 in the week ended March 16, Labor Department figures showed today. Economists projected 340,000 claims, according to the median estimate in a Bloomberg survey. The monthly average, which smoothes the week-to-week volatility, dropped to the lowest level since February 2008.
Dismissals have waned since the end of 2012 as employers maintain headcounts to meet a pickup in demand from business customers and consumers. Today’s figures support the view of Federal Reserve policy makers that the labor market is beginning to show signs of improvement.
“Claims are really encouraging,” said Michelle Girard, a senior U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who forecast 337,000 initial applications. “We’ve seen what I would characterize as a meaningful improvement, which is consistent with and corroborates the other better employment data.”
Homebuilder Confidence in U.S. Unexpectedly Fell in March
Confidence among U.S. homebuilders unexpectedly fell for a second month in March, a sign the residential real-estate market will take time to strengthen.
The National Association of Home Builders/Wells Fargo index of builder confidence dropped by 2 points to 44 this month, due to a decrease in the measure of current sales, a report from the Washington-based group showed today. The median forecast in a Bloomberg survey called for a gain to 47. Readings below 50 mean more respondents said conditions were poor.
“In addition to tight credit and below-price appraisals, homebuilding is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself,” David Crowe, chief economist at the builders association, said in a statement. “The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year.”
The group’s gauges of the sales outlook for the next six months and traffic of prospective buyers improved this month, reflecting stable property values, mortgage rates close to all- time lows and job gains. Limited inventories and resilient sales are benefiting builders including PulteGroup Inc. and Lennar Corp., showing housing will contribute to economic growth this year after emerging as a bright spot in 2012.
The builders’ index compares with a reading of 28 in March 2012. Estimates of the 41 economists in the Bloomberg survey ranged from 46 to 49. The index, first published in January 1985, averaged 54 in the five years leading to the recession that began in December 2007. It reached a record low of 8 in January 2009.
The builders group’s index of present single-family home sales fell to a five-month low of 47 in March from 51. A measure of sales expectations for the next six months climbed to 51 from 50. The gauge of buyer traffic advanced to 3
The builders group’s index of present single-family home sales fell to a five-month low of 47 in March from 51. A measure of sales expectations for the next six months climbed to 51 from 50. The gauge of buyer traffic advanced to 35 from 32.
“Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots, along with rising costs for building materials and labor,” Rick Judson, the association’s chairman and a builder from Charlotte, North Carolina, said in a statement.
The confidence survey asks builders to characterize sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.
Confidence eased among builders in three of the four U.S. regions. Builders in the Midwest reported an increase in sentiment. Confidence fell to 2 points in March to 57 in the West, dropped 2 points in the Northeast to 39 and decreased 2 points in the South to 42. Sentiment in the Midwest climbed by 5 points to 50.
Builders began work on about 780,000 homes last year, a 28.1 percent increase from 2011 and the most in four years. Even with the gain, housing starts remain well below the 2.07 million in 2005 at the peak of the housing boom.
Cheaper borrowing costs are attracting home buyers who have adequate credit. The average rate on a 30-year fixed purchase loan was 3.63 percent last week, compared with 3.92 percent a year ago, according to McLean, Virginia-based Freddie Mac. The 30-year rate reached a record low of 3.31 percent in November.
Some areas of the country continue to struggle. New York, New Jersey, Florida and Nevada are among 16 states that reported an increase in foreclosure starts in February, according to RealtyTrac Inc., a data company based in Irvine, California.
Consumer confidence fell again last week, raising the risk that the payroll tax increase that kicked in at the start of the year will make it difficult to sustain a pickup in spending.
The Bloomberg Consumer Comfort Index dropped to minus 37.5 in the period ended Jan. 27, the fourth consecutive decrease and the lowest reading since October. Other reports today showed claims for jobless benefits rose more than forecast last week and business activity picked up in January.
Income is set to drop after surging in December by the most in eight years as the levy used to fund Social Security benefits climbed by two percentage points this month. A report tomorrow is projected to show employment grew in January by the most in five months, pointing to further progress in the labor market that may help cushion the blow from the tax-induced cut in take- home pay.
“We expect a short, sharp shock at the beginning of the year,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who correctly projected the gain in spending for December reported by the Commerce Department today. “Consumer spending will slow this quarter and then gradually pick up steam as the year goes on.”
Stocks fell as investors weighed earnings and economic reports while awaiting tomorrow’s jobs data. The Standard & Poor’s 500 Index declined 0.3 percent to 1,498.11 at the close in New York.
Inventories at U.S. wholesalers unexpectedly fell in December for the first time in six months as companies tried to keep pace with cooling sales.
The 0.1 percent decrease in stockpiles followed a revised 0.4 percent rise in November that was smaller than originally reported, the Commerce Department said today in Washington. The median forecast in a Bloomberg survey called for a 0.4 percent gain. Sales were little changed after jumping 2.2 percent in November.
The drop in stockpiles at distributors means inventories will probably subtract even more from fourth-quarter economic growth than currently estimated, partially offsetting a December plunge in the trade deficit that will help boost gross domestic product. At the current pace of sales, wholesalers had enough goods on hand to last 1.19 months, the same as in November.
“We want to see inventories and sales rising at the same time,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, Pennsylvania, and the best forecaster of wholesale inventories over the past two years, according to data compiled by Bloomberg. “There will be a little bit of bounce” in stockpiles early this year, he said.
The median forecast for wholesale inventories was based on a Bloomberg survey of 26 economists. Estimates ranged from increases of 0.3 percent to 0.7 percent. The prior month’s figure was revised from a previously reported 0.6 percent gain.
Another report today showed the U.S. trade deficit narrowed more than forecast in December, led by record exports of petroleum.
Economy in U.S. Grew at 2.4% Rate, Less Than First Estimated
The U.S. economy expanded less than previously estimated in the first quarter as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010.
Gross domestic product rose at a 2.4 percent annualized rate, the Commerce Department said today in Washington. The median forecast in a Bloomberg survey called for no revision from the 2.5 percent pace initially reported.
The boost to household wealth from rising home values and stock prices is allowing Americans to weather higher payroll taxes and sustain purchases, the biggest part of the economy. Resilient consumer spending, further housing market progress and job gains will help the expansion strengthen in the second half of the year as the fallout from federal budget cuts dissipates.
“The economic outlook is still favorable,” said Millan Mulraine, an economist at TD Securities USA LLC in New York, who correctly forecast GDP. “It’s still fairly robust growth driven by consumer spending. We expect an acceleration in the second half as the economy moves beyond the current soft patch.”
Another report today showed more Americans filed claims for unemployment insurance payments last week as holiday closures kept five states from completing a full count. Applications for jobless benefits increased by 10,000 to 354,000 in the week ended May 25, the Labor Department said.
Factory Orders in U.S. Decreased More Than Forecast in March
Orders placed with U.S. factories fell more than forecast in March as a cooling economy slowed demand for metals, mining equipment and military goods.
The 4 percent drop in bookings was the biggest since August and followed a revised 1.9 percent gain the prior month that was smaller than previously estimated, the Commerce Department reported today in Washington. The median forecast of 58 economists in a Bloomberg survey predicted orders would fall by 2.9 percent.
Companies are feeling the effects of slowing growth in Europe, Asia and the U.S., where higher taxes and across-the- board federal budget cuts, known as sequestration, have restrained consumer spending. Orders could pick up as manufacturers prepare for improved demand expected in the second half of the year as employment strengthens.
“We do expect manufacturing to bounce back in the second half as the fiscal headwinds fade and global demand starts to regain its footing,” Bricklin Dwyer, an economist at BNP Paribas in New York, said before the report. “It’s a soft patch reflecting the impact of fiscal tightening and weak overseas markets.”
Estimates in the Bloomberg survey ranged from a drop of 4.5 percent to a 0.2 percent gain. The Commerce Department revised February’s figure from a previously reported 3 percent increase.
Employment picked up more than forecast in April and the jobless rate unexpectedly declined to a four-year low of 7.5 percent, figures from the Labor Department also showed today.
Confidence among U.S. consumers declined more than forecast in January, reaching the lowest level in more than a year as higher payroll taxes took a bigger bite out of Americans’ paychecks.
The Conference Board’s index decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December, figures from the New York-based private research group showed today. The January reading was lower than the most pessimistic forecast in a Bloomberg survey, which had a median estimate of 64.
The drop in confidence coincides with a two percentage- point increase in the payroll tax used to fund Social Security, a hurdle for consumers after a projected pickup in spending in the fourth quarter. The outlook for employment prospects and incomes also deteriorated this month, today’s data showed.
“The thing that’s particularly troubling is the sizable decline in expectations,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a reading of 61.6. “As those expectations deteriorate, it doesn’t bode particularly well for day-to-day consumer spending.”
The 8.1-point slump in the gauge of sentiment from a month earlier was the biggest since August 2011. Estimates of the 73 economists surveyed by Bloomberg ranged from 59 to 70. The measure averaged 53.7 in the recession that ended in June 2009.
Companies in U.S. Add to Inventories at Slowest Pace Since June
Companies in the U.S. added to inventories in February at the slowest pace in eight months, putting them in a better position to deal with a subsequent slowdown in demand.
The 0.1 percent increase in stockpiles, the smallest since June, followed a revised 0.9 percent gain in January, Commerce Department figures showed today in Washington. The median estimate in a Bloomberg survey projected a 0.4 percent advance. Sales climbed 1.2 percent, the biggest jump since September.
Another Commerce Department report today showed sales at retailers unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing. Smaller increases in inventories mean companies will not need to pull back as much this quarter even as demand cools.
Retailers’ stockpiles, the only part of today’s inventory report not previously released, climbed 0.3 percent in February while sales jumped 1.2 percent.
The other Commerce Department report today showed retail sales dropped 0.4 percent last month, the biggest decrease since June, following a 1 percent gain in February. Department stores and electronics dealers were among the merchants with weakest showings.
Businesses had enough items on hand to last 1.28 months at the current sales pace, the least since December and down from 1.29 the prior month.
The median forecast for business inventories was based on a Bloomberg survey of 48 economists. Estimates ranged from little change to gains of 0.6 percent. January’s figure was revised from an originally reported 1 percent increase.