Data signals weakness in recovery in April

NEW YORK Wed May 4, 2011 1:27pm EDT

People fill out job application forms at a job fair in Los Angeles, October 13, 2010. REUTERS/Lucy Nicholson

People fill out job application forms at a job fair in Los Angeles, October 13, 2010.

Credit: Reuters/Lucy Nicholson

Related Video

Video

U.S. job recovery continues

Wed, May 4 2011

Related Topics

NEW YORK (Reuters) - Signs of weakness in the U.S. economic recovery mounted as reports on Wednesday showed a sharp slowdown in the vast services sector and less hiring by private companies in April.

Economists expressed disappointment ahead of a key labor market report on Friday that is also expected to show payroll growth eased last month.

Higher gasoline prices and slower economic growth in the first quarter likely weighed on the world's biggest economy and tempered hiring.

Worries about rising fuel and commodity prices showed up in the latest gauge of the vast U.S. services sector, which grew at its slowest pace since August 2010, the Institute for Supply Management said.

The U.S. economy last August was in a soft patch caused by worries about the euro zone's deep debt crisis. The purchasing managers' index fell to 52.8 last month from 57.3 in March.

A reading above 50 indicates expansion in the sector.

The new orders index in the April survey tumbled to its lowest level since December 2009, a worrying sign for the service sector's outlook, economists said. New orders dropped to 52.7 from 64.1.

"It's a weak indication not only in the headline figure, but also in the worst possible place: the orders component," said Pierre Ellis, senior economist at Decision Economics.

"This is a sector that is supposed to be relatively smooth in terms of growth, so if it turns out to be more than transitory, this would be a clear indication of de-stabilization in the economy."

On Monday, ISM's manufacturing report showed the sector grew a bit more slowly for a second straight month in April.

The two indexes taken together are consistent with growth of about 2 percent in real gross domestic product, Credit Suisse wrote in a note to clients.

The Federal Reserve last week said the U.S. economy was improving only moderately and showed it was in no hurry to reverse its huge stimulus efforts, including near-zero interest rates.

A top Fed official reinforced that message on Wednesday.

Eric Rosengren, president of the Boston Fed, said wage pressures are contained, given high unemployment and higher energy and food costs have not pushed up long-term inflation expectations.

The U.S. dollar fell to a fresh three-year low against major currencies as the data compounded expectations that U.S. interest rates would stay low for a long time.

U.S. stocks fell as the disappointing data overshadowed enthusiasm over fresh corporate merger activity.

SPUTTERING ECONOMY

The data illustrates the domestic challenges still facing the Obama administration even as the killing of Osama bin Laden has boosted opinion polls.

Beyond the United States, data showed euro zone retail sales fell sharply in March as consumers felt the pinch of high prices. Concerns about the global economic recovery have also emerged as investors anticipate further tightening measures from China.

On the labor front, the ADP Employer Services report showed U.S. private payrolls rose by 179,000 jobs last month, less than economists' expectations for a gain of 198,000.

Although job gains sped up in early 2011, improvement in the labor market was no longer so robust, said Macroeconomic Advisers LLC Chairman Joel Prakken.

"Really, there's been no sign here of a further acceleration from this read," Prakken told a conference call.

"I'm becoming a little disappointed at not seeing stronger numbers, but of course the reason we're not seeing stronger numbers is the economy has sputtered a little bit."

Macroeconomic Advisers jointly produces the private labor market report with ADP.

Friday's report is expected to show a rise in overall nonfarm payrolls of 186,000 in April, based on a Reuters poll of analysts, and a gain of 200,000 in private payrolls.

Earlier on Wednesday, another report showed the number of planned layoffs at U.S. firms fell in April to the lowest monthly amount for the year so far and were outpaced by a rise in plans to hire.

Employers announced 36,490 planned job cuts last month, down 12 percent from 41,528 in March, according to a report from consultants Challenger, Gray & Christmas, Inc.

Other data showed applications for U.S. home mortgages rose last week, helped by refinancing demand as interest rates fell for the third consecutive week.

(Additional reporting by Ellen Freilich; Editing by William Schomberg and Dan Grebler)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (5)
Harry079 wrote:
Just wait and see what happens after the QE2 spigot is closed off.

Thursday’s New Filers for Unemployment numbers for last week will more than likely be over 400,000 again.

May 04, 2011 11:14am EDT  --  Report as abuse
jrj90620 wrote:
This means more Dollar devaluation by the Fed is coming.Avoid holding Dollars or bonds.Hold real assets to keep your savings from being decimated.The Titanic is listing bad now.

May 04, 2011 11:37am EDT  --  Report as abuse
Ananke wrote:
US follows the exact same economic path of Japan after the 80s. given that Japanese economy is much more elastic to exports and still in stagnation after robust decade of export to the developing Asia, I would say the best scenario for US is several decades of stagnation, a possible scenario is a massive stagflation.

May 04, 2011 12:20pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.