The economy lurched this spring into an even lower gear, from manufacturing to services to construction, leaving the Federal Reserve poised to prolong or expand its bond-buying stimulus.
Central bankers Wednesday kept benchmark rates near zero and quantitative easing purchases at $85 billion a month. But changes in their statement highlighted shifting emphasis.
"The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes," it said.
The statement also elevated the impact of fiscal tightening. But it didn't reference slower job gains or cooling inflation.
U.S. stock indexes extended their morning losses, perhaps as investors focused on the little-changed Fed economic outlook more than its QE flexibility.
Several policymakers had earlier suggested tapering bond purchases, perhaps this summer, as economic indicators pointed to increased momentum.
But recent employment and manufacturing reports warned of another spring soft patch. New figures Wednesday suggest the slowdown is worsening as tax hikes and federal budget cuts are felt more acutely.
Private-sector job growth eased to 119,000 in April, the smallest gain in seven months, vs. a downwardly revised 131,000 in March, payroll processor ADP said.
Hiring in construction and trade, transportation and utilities picked up. But manufacturers cut 10,000 jobs, and professional services firms halved their pace of staffing additions.
"Job growth appears to be slowing in response to very significant fiscal head winds," said Mark Zandi, chief economist of Moody's Analytics, which produces the report with ADP. "Tax increases and government spending cuts are beginning to hit the job market.
Manufacturing also crept closer to stagnation last month as it expanded at a slower rate. The Institute for Supply Management's index fell to 50.7, slightly above the neutral level of 50, from 51.3 in March. The employment gauge sank 4 points to 50.2.
Purchasing managers surveyed also cited federal spending cuts as well as worsening conditions overseas. But commentary didn't show a precipitous decline in conditions, and readings on production and new orders improved.
"Overall, volume is steady or slightly declining," said one chemical products manager. "Q1 sales volume is lower than projected.
Solid consumer demand for new cars is continuing to prop up factories. A refresh cycle delayed by the recession is still fueling auto sales, and the housing recovery is now prompting contractors to buy new trucks.
Ford (F) saw an 18% annual jump in U.S. sales in April. GM (GM) and Chrysler sold 11% more. Nissan (NSANY) improved 23%, but Toyota (TM) dipped 1%.
While homebuilding enjoys steady growth, other construction is suffering. Total outlays fell 1.7% in March, with private nonresidential construction spending down 1.5%. Public construction outlays tumbled 4.1%, the worst monthly retreat in 11 years, likely due to federal budget cuts. That more than offset a 0.4% rise in private residential spending.