Factory growth cools, spending stagnant

WASHINGTON Thu Mar 1, 2012 5:57pm EST

People walk in line to register for the 2009 CUNY Big Apple Job Fair at the Jacob K. Javits Convention Center in New York March 20, 2009.    REUTERS/Shannon Stapleton

People walk in line to register for the 2009 CUNY Big Apple Job Fair at the Jacob K. Javits Convention Center in New York March 20, 2009.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - U.S. manufacturing cooled in February and consumer spending was flat for a third straight month in January, suggesting the economy lost more steam early this year than expected.

"Things aren't so rosy in the garden and the consumer is still facing significant headwinds," said Ray Attrill, a currency strategist at BNP Paribas in New York.

Other reports on Thursday were more upbeat, with new claims for jobless benefits last week hovering near four-year lows and retailers and automakers enjoying brisker February sales.

Nevertheless, the spending and factory data cut into the optimism generated by a recent drop in the unemployment rate, and suggested rising energy prices were taking a toll.

The Commerce Department said inflation and taxes gobbled up income gains in January, and inflation-adjusted spending was unchanged for the third month running.

"Consumer spending is off to a pretty weak start," said Keith Hembre, an economist at Nuveen Asset Management in Minneapolis. Hembre said the data painted "a pretty weak picture for first-quarter GDP despite the strong jobs numbers."

Consumer spending and the restocking of company shelves lifted economic growth to a 3 percent annual rate in the last three months of 2011, its quickest pace in more than a year.

Economists think growth slowed early this year, and TD Securities lowered its first-quarter forecast to a 1.5 percent pace from 1.9 percent, citing the data on consumer spending.

Bets on an improving U.S. labor market helped U.S. stocks to rise even though gains were held back by the weak factory data. U.S. government debt prices fell as traders cut bets on a further easing of monetary policy.

NOT ALL BAD NEWS

The Institute for Supply Management said its national factory index dropped to 52.4 last month, indicating a slower pace of expansion. Most analysts had expected the index to rise, and the reading was below the lowest forecast in a Reuters poll.

Analysts said a surge in the ISM's reading of prices paid showed factories were getting stung by oil prices, which have risen on tensions between Iran and the West over Tehran's nuclear ambitions.

"The recent rise in energy prices ... is likely to be top of the list of concerns for producers in the coming months," said Barclays analyst Peter Newland.

The Commerce Department said its gauge of inflation rose 0.2 percent in January, picking up a bit from December as energy prices posted their first increase in four months. Economists expect rising gasoline prices were even more troublesome in February.

Despite higher costs at the pump, a surprising sales gain by General Motors Co and strong performances by Ford Motor Co and others pushed U.S. auto sales close to a four-year high in February.

Reports from retailers offered another sign January's spending weakness might be temporary. Chain stores sales rose 6.7 percent in February from a year earlier, according to the International Council of Shopping Centers.

The drop in jobless claims also buttressed the view that the economic recovery was still firmly entrenched, and it suggested a government report next week would show companies were still hiring at a brisk pace in February.

The number of people receiving benefits under regular state programs after an initial week of aid fell in mid-February to the lowest level since August 2008.

"It's consistent with our thought that the pace of job growth is picking up and accelerating," said Kevin Cummins, an economist at UBS Securities in Stamford, Connecticut.

(Additional reporting by Lucia Mutikani in Washington and Emily Flitter and Edward Krudy in New York; Editing by Neil Stempleman and James Dalgleish)

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Comments (17)
BlueOkie wrote:
It is not about jobless claims as much as it is about people having jobs. The numbers in the workforce are down since Obama took office. Obama is trying to put lipstick on a pig

Mar 01, 2012 9:17am EST  --  Report as abuse
ratflambeau wrote:
Thanks, BlueOkie. Correct me if I’m wrong, but what you’re saying is that since there are fewer people who still *have* jobs, it is only to be expected that there will be fewer people remaining in the workforce to file unemployment claims. Thus the drop in new claims for jobless benefits doesn’t mean that the economy is improving, it just means that the economy is getting nearer to rock bottom.

So any claim that these numbers are encouraging is just wishful thinking, or government “spin.”

The economy will not improve until *all* the economic measures are positive and in agreement with each other, and that won’t happen until the U.S. government gets its spending and deficit under control, and *that* won’t happen until the current tax-and-spend administration is booted out of office.

Mar 01, 2012 9:40am EST  --  Report as abuse
jcfl wrote:
let’s see – 80% of deficit increases since 1980 have come under the watchful gaze of gop presidents. no-one on the right said a word while bush2 increased the deficit at a trillion dollar a year clip for 8 years! now you want us to believe that obama spent it all in the past 3 years (and getting us out of a gop caused depression!!) if i were you i’d demand that my 401k be reduced to the level bush left it at after a 7500 point landslide. and yes, i’m better off than 3 years ago and so are you, whether you can admit it or not.

Mar 01, 2012 10:04am EST  --  Report as abuse
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