March 1, 2021

Factory Activity Plummets And Home Resales Slump

Other data released on Thursday also showed that consumer inflation rose at its fastest rate in four months in July and that more Americans than expected filed claims for jobless benefits last week.

Stock markets worldwide tumbled on the weak economic data, which stoked concerns that the recovery was on the rocks.

Still, economists said they did not believe that the sharp drop in manufacturing activity signaled that the nation’s economy was sliding back into recession.

“Without a strong rebound in the coming months, this will be taken as a very worrying development for policy makers charting the outlook for the second half of the year,” said Peter Newland, a senior economist at Barclays Capital in New York.

“That said, ‘hard’ data so far available for the third quarter have taken a clearly stronger tone and timely jobless claims data are not indicative of a dramatic weakening in the economy,” he added.

Data including retail sales and industrial production suggested the economy found some momentum early in the third quarter after barely growing in the first half of the year.

The president of the Federal Reserve Bank of New York, William C. Dudley, said on Thursday that the risk of a double-dip recession was “quite low.”

“The risks have risen a little bit, but I think we very much still expect the economy to recover.” The agency expects growth to be significantly firmer than it was during the first half of the year, he told New Jersey business leaders.

In one positive report, the Conference Board said its index of leading economic indicators rose 0.5 percent in July. The increase, which followed a gain of 0.3 percent in June, was lifted by the money supply and interest rate components, the board said.

Ken Goldstein, an economist at the board, said that growth was modest, especially in nonfinancial indicators.

Despite the risks, he said, “the economy should continue to expand at a modest pace through the fall.”

The Philadelphia Federal Reserve Bank’s business activity index fell to minus 30.7 in August, the lowest level since March 2009 when the economy was in recession, from 3.2 in July.

That was much worse than economists’ expectations for a reading of plus 3.7. Any reading below zero indicates a contraction in the region’s manufacturing.

“This report clearly reflects the fact that businesses cut their outlook as a result of the debt limit crises and the resulting downgrade of the U.S. credit rating,” said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

“I would not read too much into this in terms of the outlook on the economy since manufacturing had been on the rebound in autos and exports and the economy was stuck in first gear for two years.”

A second report showed sales of previously owned homes fell 3.5 percent in July, to an annual rate of 4.67 million units, the lowest in eight months. Economists had expected home resales to rise to a 4.9 million-unit pace.

Separate data from the Labor Department showed initial claims for state unemployment benefits increased 9,000, to 408,000. Another report from the department showed the Consumer Price Index increased 0.5 percent in July, the largest gain since March, after falling 0.2 percent in June.

Gasoline, which rose 4.7 percent after falling 6.8 percent the previous month, accounted for about half of the rise in C.P.I. last month.

But core C.P.I. — excluding food and energy — rose 0.2 percent after rising 0.3 percent in June.

Morgan Stanley cut its global growth forecast and said that the United States and its major export partner the euro zone were “dangerously close to recession.” In a research note that spooked investors, it lowered its United States estimate to 1.8 percent growth in gross domestic product for 2011 from 2.6 percent and for next year to 2.1 percent from 3.0 percent.

The jobless claims data covers the survey week for August nonfarm payrolls. Claims dropped by 14,000 between the July and August survey periods, but there are fears that turbulence in the financial markets could have slowed hiring this month.

“Initial claims were a bit higher than expected, indicating a generally sluggish trend for hiring although still better than where we stood during the second quarter,” said Avery Shenfeld, an economist at CIBC World Markets in Toronto.

Despite the spike in consumer inflation last month, which also reflected a 0.4 percent rise in food prices, inflation generally remains contained.

New motor vehicle costs were unchanged after five consecutive months of hefty gains. This probably reflects an improvement in supplies as disruptions caused by the March earthquake in Japan fade. Motor vehicle production rebounded sharply in July.

In the 12 months to July, core C.P.I. increased 1.8 percent — the largest increase since December 2009. This measure has rebounded from a record low of 0.6 percent in October, and the Fed would like to see that closer to 2 percent.

Overall consumer prices rose 3.6 percent year-on-year, rising by the same amount for a third consecutive month.

Within the core C.P.I. basket, shelter costs rose 0.3 percent, the largest gain since June 2008, after advancing 0.2 percent in June. Shelter has increased since October as a persistently weak housing market drives Americans into renting.

The increase in apparel prices slowed to 1.2 percent from June’s 1.4 percent increase.

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