March 31, 2023

Sharp Fall for Orders of Durable Goods

Manufacturing continues to struggle, and its weakness could prevent economic growth from picking up in the July-September quarter.

Orders for durable goods dropped 7.3 percent in July, the Commerce Department said Monday, the steepest drop in nearly a year. But excluding the volatile transportation category, orders fell only 0.6 percent. Both declines followed three straight months of increases.

Durable goods are items meant to last at least three years.

Economists tend to focus on orders for so-called core capital goods. Those orders fell 3.3 percent, but the drop followed four straight months of gains.

Core capital goods can show businesses’ confidence in the economy. They include items that point to expansion — including machinery, computers and heavy trucks — while excluding volatile orders for aircraft and military equipment.

The big drop suggested the third quarter was off to a weaker start than some had hoped. While economists cautioned that this was just one month of data, a few lowered their growth estimates for the July-September quarter after seeing the durable goods report. Economists at Barclays Capital now predict third-quarter growth at an annual rate of 1.9 percent, down from their previous forecast for 2.1 percent.

“At the very least, it is a reminder that the expected pickup in economic growth in the second half of the year will be gradual,” said Paul Ashworth, an economist at Capital Economics.

One bright spot was that unfilled orders for durable goods rose to their highest level since record-keeping began in 1992. Those are orders that were placed in previous months but had yet to be shipped. The increase suggested that output could remain steady in the coming months, despite the weak month of orders in July.

And orders for autos and auto parts rose 0.5 percent, the second monthly gain. Auto sales jumped 14 percent in July compared with a year earlier.

Manufacturing has slumped this year, hurt by weakness overseas that has dragged on American exports. But there have been signs that factory activity could pick up in the second half.

Article source:

U.S. Economy Expanded Slightly in 4th Quarter

Output expanded at an annual rate of 0.1 percent, which is basically indistinguishable from no growth at all and which is far below the growth needed to get unemployment back to normal. But at least the economy did not shrink, as the Commerce Department estimated in January, when the first report suggested that output had contracted at an annual rate of 0.1 percent.

The department’s latest estimate for economic output, released on Thursday, showed that growth was depressed by declines in military spending (possibly in anticipation of the across-the-board spending cuts that are to begin on Friday) and in how much companies restocked shelves.

“The good news with business inventories is that what they take away in one quarter they tend to add to the next,” said Paul Ashworth, chief North American economist at Capital Economics, referring to the measure of this restocking process. “So there’s a good chance that first-quarter numbers will be better than originally thought.”

The growth in output was revised upward from the original estimate partly thanks to updated, and improved, data on business investment and net trade. Imports were lower than previously reported and exports were higher.

Economists expect government spending to continue to drag on the economy this year, especially if Congress does not avert the spending cuts, which would shave around 0.6 percentage point off growth. Many hope that even if the cuts go through, Congress will quickly reverse them.

“They can always change their minds when they have to renew the continuing budget resolution at the end of this month or in April or May,” said Mr. Ashworth. “My expectation is that at most the cuts stay a month or two, and in most departments, with a wink or a nod, they won’t do anything crazy.”

Even if government does lop off $85 billion in the so-called sequester, as current law states, the private sector will offset most of this drag, thanks to the housing recovery and other sources of strength. Forecasts for the first quarter call for annual growth of 2.4 to 3 percent.

Monetary stimulus from the Federal Reserve, while under fire from some Republicans, is also helping offset the fiscal contraction.

“With monetary policy working with a lag and still being eased, the boost to the economy is probably still growing,” said Jim O’Sullivan, chief United States economist at High Frequency Economics.

The combination of monetary expansion and fiscal tightening has helped lead to a painfully slow decline in the unemployment rate. The jobless rate stood at 7.9 percent in January. The recent end of the payroll tax holiday is also expected to hold back consumer spending and with it job growth.

The Labor Department reported on Thursday that first-time claims for unemployment benefits decreased by 22,000, to 344,000, last week. The less-volatile four-week moving average fell to 355,000 from 361,750.

“I think it’s largely steady as she goes for employment,” said Jay Feldman, an economist at Credit Suisse, of the indications from the latest growth report. “I still think we’re in kind of a 175,000-jobs-a-month clip for a while, but with some downside risks later in the year from the sequester.”

Article source:

U.S. Recovery Slowly Gained Speed in Late ’11, Data Show

The pace of growth was faster than in the third quarter, when gross domestic product expanded at an annual rate of 1.8 percent.

Even so, both  figures were below the average speed of economic expansion in the United States since World War II. Above-average growth in the quarter would have helped to make up for the destruction wrought by the Great Recession.

“At this rate, we’ll never reduce unemployment,” said Justin Wolfers, an economist at the University of Pennsylvania. “The recovery has been postponed, again.”

Still, the 2.8 percent rate is likely to be seen by many as something of a relief, given that just last summer many economists were predicting the country would soon dip back into recession. Whether this modestly brisker pace of growth will continue is unclear, however.

One of the biggest drags on growth in the last quarter was government spending at the federal, state and local levels, according to the Commerce Department report. National defense spending fell a whopping 12.5 percent, for example. Strapped state and local governments are likely to continue cutting back in 2012, as they have done nearly every quarter for the last several years.

At the federal level, Congress has not yet decided whether to renew a temporary payroll tax cut and extended unemployment benefits past February, when both are scheduled to expire.

Consumer spending rose at an annual pace of 2 percent, slightly better than the 1.7 percent in the previous quarter. But there were signs that the increase in spending might have been driven by borrowing based on expected improvements in the economy and that consumers were starting to retrench again.

“It will be very hard for consumption growth this quarter to match what we saw last quarter,” said Paul Ashworth, chief United States economist at Capital Economics. “Remember that with consumption at 70 percent of G.D.P., slower consumer spending growth can mean much slower G.D.P. growth.”

Among the more optimistic signs recently, many American companies have reported strong profits in recent months. In addition, new orders for manufactured durable goods, reported on Thursday, exceeded economists’ expectations in December by growing 3 percent.

And companies like General Electric and Lockheed Martin closed the year with record order backlogs, a sign that, at least for some businesses, demand is so strong that they cannot produce quickly enough. The backlogs portend solid manufacturing growth going forward, and suggest to some economists that the United States could weather the European sovereign debt crisis relatively unscathed after all.

On the other hand, so far in this recovery, corporate success has not necessarily benefited American workers and consumers. Today, the economy produces more than it did when the recession began in 2007, but it manages to do so with six million fewer jobs.

Companies seem reluctant to use their burgeoning profits to invest in new workers.

“Businesses have been holding much higher levels of cash than they have in past,” said Conrad DeQuadros, senior economist at RDQ Economics.

Article source:

Signs of Hope in Jobs Report; Unemployment Drops to 8.6%

The unemployment rate fell to 8.6 percent, after having been stuck around 9 percent for most of 2011, the Labor Department said Friday. Additionally, a separate government survey found that the nation’s employers added 120,000 jobs last month, after adding 100,000 jobs in October.

These numbers were not particularly impressive by historical standards — they were just about high enough to keep up with population growth — but employment in the previous two months was revised upward substantially, too.

“If you go back to August, all sorts of people were telling us that the economy was headed straight into recession,” said Paul Ashworth, senior United States economist at Capital Economics. “Since that point, we’ve become more and more worried about the euro zone and other areas of the global economy, but somehow, at least for the moment, the U.S. economy seems to be shrugging all that off.” Still, concerns remain about the economy’s ability to withstand these international dangers.

The jobless rate fell partly because more workers got jobs, but also because about 315,000 workers dropped out of the labor force, and the jobless rate counts only people who are actively looking for work. Even so, the country still has a backlog of more than 13 million unemployed workers, whose periods of unemployment averaged an all-time high of 40.9 weeks.

“They say businesses are refusing to look at résumés from the unemployed,” said Esther Perry, 59, of Bedford, Mass., who participated in a recent report on unemployed workers put together by USAction, a liberal coalition. “What do you think my chances are? Once unemployment runs out, I don’t know what I will do.”

The continued fragility of the economy underscores just how much President Obama needs additional stimulus, a tidy and fast resolution to the European debt crisis or some other breakthrough to reinvigorate the job market before the 2012 presidential election.

On the issue of government action to stimulate the economy, there has been some movement in Washington toward extending the payroll tax cut, which is currently scheduled to expire at the end of this month. Economists have said that allowing the expiration of the tax cut — which lets more than 160 million mostly middle-class Americans keep two percentage points more of their pay checks — could be a severe drag on both job creation and output growth.

“If isn’t extended, it will have an impact on consumer spending in the first half of next year because it’ll put a big dent in consumer income,” said Conrad DeQuadros, senior economist at RDQ Economics. “To the extent that reduces spending, there will be second-round effects on hiring.”

The other major stimulus program scheduled to expire by 2012 is the extended unemployment insurance benefits, which allow some jobless workers to continue receiving benefits for as long as 99 weeks. Already, millions of workers have exhausted their benefits, and ending extended benefits is likely to affect another sizable chunk of the unemployed.

“In January alone, 1.8 million workers who currently receive federal unemployment insurance or would have begun to receive it will be cut off if Congress does not renew the program,” according to a recent report from the National Employment Law Project.

Unemployment benefits are believed to have one of the most stimulative effects on the economy, since recipients of these benefits are likely to spend all of the money they receive quickly and so pump more spending through the economy.

Article source: