January 19, 2021

Anemic Growth, and Some Slowing, Seen in Fed Data

The Federal Reserve said Wednesday that the recovery lost steam in eight of 12 regions it tracks in recent weeks, with hiring modest, wages soft and price pressures subdued.

“Economic activity continued to grow; however, the pace has moderated in many districts,” the Fed said in its report, known as the beige book.

Separately, the Commerce Department said weak receipts for transportation equipment pushed down durable goods orders 2.1 percent last month after a 1.9 percent increase in May. A closely watched reading on business spending plans also fell.

Excluding transportation, orders edged up just 0.1 percent.

“We’re getting confirmation that this is more than just a soft patch in the first part of the year, that it’s a more fundamental slowdown triggered in part by the political environment and jittery markets,” said Michelle Meyer, an economist at Bank of America Merrill Lynch.

Economists said the drop in the so-called core category of factory orders that is used as a proxy for business spending plans was troubling and could yield slower growth in spending by businesses on equipment and software in the third quarter.

That measure — nonmilitary capital goods orders excluding aircraft — slipped 0.4 percent last month after a 1.7 percent rise in May.

“The June decline is somewhat worrisome regarding the vigor of the trend in capital spending,” said Michael Feroli, an economist at JPMorgan Chase Company in New York. “This is particularly so given that the June data probably predates any debt ceiling-driven precaution on the part of business behavior.”

Durable goods are items ranging from toasters to aircraft that are meant to last three years or more. Though orders tend to be volatile, last month’s unexpected decline suggested factory activity was slowing.

The Fed report, based on comments by business contacts in the central bank’s 12 districts, also presented a glum picture.

While most districts saw modest hiring gains, labor markets remained soft, the Fed said. Home sales were little changed since the beige book issued in early June, and most districts reporting on home prices found them flat or declining.

Against that backdrop, wage pressures were subdued and price pressures moderated somewhat, the Fed said.

The economy has been hurt by high gasoline costs and supply chain disruptions after the March earthquake and tsunami in Japan, but economists had hoped the recovery would be picking up speed by now.

Businesses, sitting on $2 trillion in cash, have been spending heavily on equipment and software. Economists said businesses still had pent-up demand, but much would depend on developments in the debt ceiling negotiations in Washington over the next days.

A range of American companies — like Emerson Electric and Corning — on Wednesday warned that demand was weakening.

Emerson Electric said American and European economies had “clearly slowed” in the last two months, sending its own shares down. Other industrial shares were also lower across the board.

Brian Levitt, an economist at OppenheimerFunds in New York, said a resolution of the budget standoff in Washington ahead of an impending deadline for Congress to raise the nation’s borrowing limit could help lift the cloud hanging over the economy.

“We’re going to need some clarity over the next week, and if events turn out as the market hopes it will, there is still some impetus for growth as we head out into year-end,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=80ad5cc75b8b9004bc5b0e536666c1da

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