* Factory activity strengthens in November - Markit
* New U.S. jobless claims fall 41,000 in latest week
* Improvement in consumer sentiment stalls in November
* Leading economic indicators point to modest growth
By Jason Lange
WASHINGTON, Nov 21 U.S. manufacturing grew in
November at its quickest pace in five months, with a rise in
domestic demand hinting that factories could provide a boost to
economic growth in the fourth quarter.
Other data on Wednesday showed a drop in new claims for
jobless benefits, although they remained elevated due to
superstorm Sandy, and only a marginal improvement in consumer
Financial information firm Markit said its U.S. "flash," or
preliminary, manufacturing Purchasing Managers Index rose to
52.4 from a three-year low of 51.0 in October. A reading above
50 points to growth in the factory sector.
Still, economists cautioned against taking the reading at
face value as other gauges of manufacturing have looked softer,
including readings for new orders and regional business
"We're still not exactly going gangbusters," said Sarah
Watt, an analyst at Wells Fargo in Charlotte, North Carolina.
"The data point to modest growth."
Economists expect U.S. economic growth will slow in the
fourth quarter to a lackluster 1.6 percent annual rate from a
2.0 percent rate in the prior three months, according to a
Reuters poll conducted on Nov. 15.
Some respondents in Markit's survey said efforts to rebuild
after Sandy may have accounted for some of the increased demand.
The storm continues to make it more difficult to read the
underlying health of the economy. Jobless claims surged after
the deadly storm hit the U.S. East Coast on Oct. 29 but last
week retraced about half of that rise. Factory output and retail
sales contracted last month, largely due to the storm.
Most of these effects are expected to be temporary, but even
taking that into account, the U.S. economy appears to be stuck
in low gear. Europe's debt crisis is weighing on the global
economy and U.S. businesses appear hesitant to ramp up hiring
and investment with the government on course to slash the
country's budget deficit next year.
"Stripping out the short-term boost from Sandy ... and
(factory) output is probably flat," said Paul Dales, an
economist with Capital Economics in London. "That's unlikely to
change much when the global economy is set to remain weak."
THROUGH THE EYE OF THE STORM
The Labor Department said initial claims for state
unemployment benefits dropped 41,000 to a seasonally adjusted
410,000. Sandy had driven first-time filings up by 90,000 in the
Economists said that while the still-high level of claims
reflected the storm's impact, it also likely pointed to more
fundamental problems in the jobs market.
"There appears to be a noticeable deceleration of growth in
the fourth quarter," said Peter Hooper, an economist at Deutsche
Bank in New York. "It would not be surprising if some of the new
jobless claims are due to underlying weakness," he said.
U.S. financial markets showed little reaction to the data as
investors focused on developments in Europe and trading slowed
ahead of the Thanksgiving holiday on Thursday. U.S. stocks rose,
while Treasury debt prices were down modestly.
The claims report covered the same week when the Labor
Department collects data for its estimate on hiring in November.
It suggested that report, due on Dec. 7, could prove soft,
although not all analysts expect a significant storm impact.
Nonfarm payrolls grew 171,000 in October.
"We are expecting things to be in the neighborhood of what
we have seen, maybe with a pullback in light of the hurricane,"
said Bricklin Dwyer, an economist at BNP Paribas in New York.
Growth in the U.S. economy has looked uneven in recent
months, with business investment sagging due to fears about U.S
fiscal policy, while consumer spending and the housing market
have shown some strength.
At the end of November, several months of improvement in
U.S. consumer sentiment stalled as uncertainty grew over whether
lawmakers would steer clear of planned tax hikes and government
spending cuts, a survey showed.
The Thomson Reuters/University of Michigan's final November
reading on the overall index on consumer sentiment came in at
82.7, a touch up from 82.6 the month before, but down from a
preliminary reading of 84.9 released earlier in the month.
Separately, a gauge of future U.S. economic activity rose
marginally in October, pointing to modest near-term growth.
"Based on the trends, the economy will continue to expand
modestly through the early months of 2013," said Ken Goldstein,
an economist at the Conference Board, which released the report.
Other data showed applications for U.S. home mortgages eased
last week, though demand for new loans improved.