Data point to slow pace of healing in economy

WASHINGTON Thu Aug 23, 2012 2:21pm EDT

1 of 2. General Dynamics employees work on an Abrams battle tank during a tour of the Joint Systems Manufacturing Center, Lima Army Tank Plant, in Lima, Ohio, April 23, 2012.

Credit: Reuters/Matt Sullivan

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WASHINGTON (Reuters) - Growth in the manufacturing sector picked up in August, a sign the economy is resisting the global economic chill although a rise in new jobless claims last week pointed to a still-sluggish labor market.

Financial information firm Markit said on Thursday its "flash" index for U.S. manufacturing edged up a half point to 51.9 in August. A reading above 50 indicates expansion.

That was still some of the weakest growth in the factory sector in the last three years, reinforcing the view that U.S. economic growth will pick up in the second half of the year but remain lackluster.

"The U.S. economy is slowly turning the corner," said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.

The reading, based on a survey of purchasing managers, beat expectations and rose despite sluggish overseas demand for American goods.

Still, the modest improvement was not enough to dissuade investors' bets on more monetary stimulus from the Federal Reserve. U.S. government debt prices rose, although stocks slumped on Wall Street amid signs of further weakness in the global economy.

Many economists think the Fed could unveil a new bond buying program to prop up economic growth as soon as its next meeting September 12-13, although an improvement in hiring this month could make that less likely.

The data on initial jobless claims suggested employers remain cautious about adding staff.

The Labor Department said initial claims for state unemployment benefits rose 4,000 last week to a seasonally adjusted 372,000.

"Jobless claims continue to indicate ... a sluggish labor market," said Peter Cardillo, an economist at Rockwell Global Capital in New York. "The numbers also strengthen the hand of the Fed to aid the economy with more stimulus."

However, Cardillo and other economists said the slow pace of healing in the labor market doesn't necessarily point to immediate action by the Fed.

The data keeps pressure on President Barack Obama ahead of his November re-election bid. Republican challenger Mitt Romney is trying to focus voters' attention on a lofty unemployment rate that has dogged Obama's presidency.

HIRING OUTLOOK

The U.S. economy faces a number of threats In the coming months, including the looming possibility the government will raise taxes and cut spending. That is already hurting business sentiment.

Europe's festering debt crisis also menaces the global economy. Business surveys released on Thursday painted a global picture of economic malaise from Beijing to Berlin.

Minutes from the Fed's July 31-August 1 policy review, released on Wednesday, suggested the central bank is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably.

One tiny sign of improvement has come in the housing market, although home building is still too slow to add very much to the broader economy.

The Commerce Department said new single-family home sales edged higher in July while data from the Federal Housing Finance Agency showed home prices rose in June.

"We're moving in right direction but at a slow pace," said Fred Dickson, a market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

Despite the increase in jobless claims last week, there was a silver lining to the report on layoffs.

The data covers the same week looked at by the government for its monthly measure of employment, and showed a slight drop in layoffs from the survey week last month, which is a mildly positive signal for hiring in August.

The four-week moving average for new claims, a measure of labor market trends, was 368,000 last week. That was a slight increase from the prior week, but still 2.1 percent lower than in the second week of July.

That week, the government surveyed employers and concluded 163,000 new jobs were created in July - an improvement from the prior three months though the unemployment rate still ticked higher to 8.3 percent.

"No signs here that there's been a notable pick-up in layoffs, and (that) would suggest to us that moderate job growth continued in August," said Ellen Zentner, an economist at Nomura Securities in New York.

The government will release its employment report for August on September 7, and policymakers at the Federal Reserve will scrutinize the data for signs the economy is improving.

Economists at Barclays said the claims data was consistent with payroll growth of 150,000.

(Additional reporting by Steven C. Johnson in New York; Editing by Neil Stempleman)

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