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.”
Manufacturing in the Philadelphia region unexpectedly contracted in January, an indication companies are becoming more concerned about across-the-board U.S. government spending cuts that could slow growth.
The Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 5.8 from 4.6 in December. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 58 economists surveyed by Bloomberg was 5.6. Estimates ranged from minus 3 to 10
The report follows New York Fed data released earlier this week showing factory activity shrank for a sixth straight month and raises the risk manufacturing, once a pillar of the recovery, will again weaken in early 2013. Looming changes in federal spending and stagnant prices give companies little reason to expand inventories, which may hurt manufacturers.
“Manufacturing is going to be touch-and-go over the next few months until we get some fiscal clarity,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the only economist to project the index would turn negative. The New York and Philadelphia surveys are “a sign that the fiscal deal struck on new year’s was a good first step, but it didn’t reduce the uncertainty.”
Other reports today showed housing starts surged more than forecast in December, fewer Americans than projected applied for jobless benefits last week and Americans’ economic outlook deteriorated in January to a three-month low as paychecks began reflecting higher taxes.
Confidence among American households unexpectedly fell to a one-year low in January, as higher payroll taxes create a risk that the biggest part of the economy will slow in early 2013.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3, the lowest since December 2011, from 72.9 the prior month. The gauge was projected to rise to 75, according to the median forecast in a Bloomberg survey.
A boost to confidence in the second half of 2012 from a pickup in job growth has evaporated, just as lawmakers in Washington remain divided about raising the debt ceiling and cutting government spending. Discounters including Target Corp. (TGT) are trying to lure shoppers with year-round promotions as households brace for smaller paychecks due to a two percentage- point increase in payroll taxes.
“The economy is growing at a tepid rate, employment is growing at a tepid rate and consumer confidence is measly,” said Kevin Harris, chief economist at Informa Global Markets in New York, whose projection of 72 for the Michigan index was closest in the Bloomberg survey. “Everybody took a two percentage-point pay cut and that is not going to help.”
Stocks closed at a five-year high as investors weighed prospects for a short-term increase in the debt ceiling. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,485.98 at the close in New York.
Another report today showed that New York and New Jersey led payroll gains in December as the states rebounded from superstorm Sandy. Of the 27 states showing stronger employment, New York was at the top of the pack with a 35,100 increase, followed by New Jersey with 30,200, according to the Labor Department.
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.
The economy in the U.S. unexpectedly came to a standstill in the fourth quarter as the biggest plunge in defense spending in 40 years swamped gains for consumers and businesses.
Gross domestic product dropped at a 0.1 percent annual rate, weaker than any economist forecast in a Bloomberg survey and the worst performance since the second quarter of 2009, when the world’s largest economy was still in the recession, Commerce Department figures showed today in Washington. A decline in government outlays and a smaller gain in stockpiles subtracted a combined 2.6 percentage points from growth.
Rising auto sales led the advance in consumer spending last quarter as a drop in fuel prices and the largest income gain in four years enabled the biggest part of the economy to overcome superstorm Sandy and Washington budget battles. Little inflation and a stop-and-go expansion are why Federal Reserve policy makers, who wrapped up a two-day meeting today, pressed on with plans to pump more money into financial markets.
“I’m not going to say growth is particularly strong, but this is not a recessionary signal by any means,” said Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, whose team projected a 0.3 percent gain, the lowest in the Bloomberg survey. “This really was a story about a payback in national defense spending. Consumer- spending growth picked up, fixed investment was fairly strong.”
Stocks fell, dragging benchmark indexes from five-year highs. The Standard & Poor’s 500 Index declined 0.4 percent to 1,501.96 at the close in New York.
Claims for U.S. unemployment benefits increased more than forecast last week, nearly erasing a slide in the prior two weeks and reflecting the difficulty of adjusting the figures for swings at the start of a year.
Initial jobless claims rose 38,000 in the week ended Jan. 26, the most since Nov. 10, to 368,000, the Labor Department reported today in Washington. Economists forecast 350,000 filings, according to the Bloomberg survey median. The increase followed a combined 45,000 drop in the prior two weeks.
“It looks like the underlying trend in claims is just stable at around 360,000, which is where we were for much of 2012,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York, who projected 367,000 filings. “Today’s increase in claims I think is evidence that the low readings from early January were distorted.”
Employers created about the same number of jobs in January as a month earlier, indicating labor market progress is unfolding about at the same pace as it has the last two years, figures tomorrow may show. Faster consumer spending and corporate investment in new equipment at the end of 2012 indicate employers may look past federal budget debates in Washington and add to headcounts.
The swings in jobless claims may reflect challenges the agency has adjusting the data during the holiday period and at the start of quarters. In 2008, claims slumped in the early part of January before rebounding at the end of the month. Claims this month are typical of this volatility, a Labor Department spokesman said as the figures were released.
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.
Orders placed with U.S. factories increased less than forecast in December, reflecting a drop in non-durable goods that partly countered gains in construction equipment and computers.
Bookings climbed 1.8 percent after a revised 0.3 percent drop in November that was initially reported as unchanged, figures from the Commerce Department showed today in Washington. The Bloomberg survey median called for a 2.3 percent gain. Demand for durable goods increased 4.3 percent, little changed from a 4.6 percent gain estimated last week, while non-durables dropped 0.3 percent on declines in petroleum and tobacco.
A fourth-quarter pickup in consumer spending is spurring companies including automakers such as Chrysler Group LLC and Ford Motor Co. (F), reviving a manufacturing industry that cooled in the second half of 2012. The acceleration extended into January, according to a gauge last week that showed factories expanded at the strongest pace in nine months.
“Manufacturing’s fine,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a 1.9 percent gain in orders. “The economy continues to improve.”
Estimates in the Bloomberg survey of 63 economists ranged from a drop of 0.3 percent to a 3 percent gain.
A measure of job prospects fell in January for the first time in four months as more Americans said jobs were harder to get, another report showed. The Conference Board’s Employment Trends Index decreased 0.1 percent to 109.38 from the prior month’s revised reading of 109.47, the New York-based private research group said. The measure increased 2.7 percent from January 2012.
The productivity of U.S. workers fell more than projected in the fourth quarter as the economy shrank, pushing labor expenses up and showing companies are approaching the limit of how much efficiency they can wring from employees.
The measure of employee output per hour decreased at a 2 percent annual rate, the worst performance in almost two years, after a 3.2 percent gain in the prior three months, a Labor Department report showed today in Washington. The median forecast in a Bloomberg survey of 63 economists called for a 1.4 percent drop. Expenses per worker increased at a 4.5 percent rate, more than estimated.
Companies ramped up hiring toward the end of 2012, a sign they’re finding it difficult to make do with the existing staff as sales improve. A pickup in consumer and business spending last quarter -- even as the economy shrank due to a plunge in defense outlays and slower stockpiling -- also will help to improve the job market this year.
“Companies have been getting as much as they can out of the existing workforce, and they’re strapped now,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “They recognize that they can’t grow their business without adding to their workforce.”
Economists’ estimates in the Bloomberg survey ranged from a decline of 3.5 percent to a gain of 0.3 percent. Productivity in the third quarter was revised up from a previously reported 2.9 percent gain.
First-time claims for unemployment insurance payments fell last week, returning to levels seen in the second half of 2012, another report from the Labor Department showed today.
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.
Job openings in the U.S. dropped in December from a four-year high, a sign employers put expansion plans on hold as lawmakers wrangled over tax and spending programs.
The number of positions waiting to be filled fell by 173,000 to 3.62 million, the fewest since September, from a revised 3.79 million the prior month that was the most since May 2008, the Labor Department said today in a statement. The pace of hiring cooled, and firings were the lowest on record.
The threat of tax increases and government spending cuts that constituted the so-called fiscal cliff raised concern the economy would stumble at the end of 2012. Further progress may continue to be delayed early this year as Congress debates how much to reduce federal outlays.
“The labor market is improving, but certainly not at a robust rate,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. Price is the best forecaster of payroll growth in the past two years, according to data compiled by Bloomberg. “We’re still going to see that relatively modest pace of advancement in the first part of 2013 as businesses wait to see how the adjustments with payroll taxes and spending cuts affect the economy.”