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WRAPUP 2-Evidence mounts on slower U.S. economic growth
May 16, 2013 / 1:20 PM / 4 years ago

WRAPUP 2-Evidence mounts on slower U.S. economic growth

* Mid-Atlantic factory activity contracts in May
    * U.S. jobless claims rise sharply in latest week
    * Housing starts drop more than expected in April
    * Inflation data points to softer demand in economy

    By Jason Lange
    WASHINGTON, May 16 (Reuters) - The U.S. economy showed fresh
signs of slower growth in the second quarter, with factory
activity slipping in the mid-Atlantic region while
groundbreaking declined at home construction sites.
    Other data on Thursday showed a spike in new claims for
jobless benefits last week as well as soft underlying inflation
that could point to weak demand in the economy.
    "We are seeing a soft start for growth in the second
quarter," said Sam Bullard, an economist at Wells Fargo in
Charlotte, North Carolina.
    The data could raise concerns over the impact of a
government austerity drive that began in January and the fallout
from a recession in the euro zone. 
    It could also increase pressure on the Federal Reserve to
keep its money printing press running on overdrive to support
the economy.
    The Philadelphia Federal Reserve Bank said its gauge of
factory activity in the mid-Atlantic region fell to minus 5.2 in
May. Negative readings in the index point to a contraction in
    Drops in new orders and in employment weighed on the index,
which covers factories in eastern Pennsylvania, southern New
Jersey and Delaware.
    The report added to recent signs that weakness in
manufacturing in March and April extended into May. 
    "We are not rebounding from the recent swoon," said Jacob
Oubina, an economist at RBC Capital Markets in New York. "We are
just muddling along."
    U.S. economic growth picked up in the first three months of
the year after a dismal fourth quarter, but the April-June
period is expected to show a more lackluster expansion as
Washington's push to trim the budget deficit weighs on consumers
and businesses. 
    The federal government hiked taxes in January and initiated
sweeping budget cuts in March. Signs of consumer weakness were
evident in a report by Wal-Mart that sales fell 1.4 percent in
the first quarter at its U.S. stores open at least a year.
    The data put downward pressure on U.S. stock prices, which
were little changed at midday. It also pushed down yields on
U.S. government debt, while the dollar weakened against a basket
of currencies.
    Groundbreaking for new U.S. homes fell more than expected in
April, plunging 16.5 percent to a 853,000-unit annual rate, the
Commerce Department said in a separate report. 
    Still, permits to build new homes rose, lending support to
the expectation of analysts that housing will contribute to the
economy's recovery this year. In addition, most of the weakness
in starts was in the volatile multifamily homes segment.
    Separately, a report from the Labor Department showed a
sharp drop in gasoline costs in April led to the biggest drop in
U.S. consumer prices in more than four years.
    The Consumer Price Index slipped 0.4 percent, the biggest
decline since December 2008 when America was suffering some of
the darkest days of its financial crisis. Analysts had expected
a more modest 0.2 percent drop.
    In the 12 months through April, consumer prices rose 1.1
percent. That is well below the Fed's 2 percent inflation goal.
The U.S. central bank targets a different gauge of prices that
tends to run cooler than the Labor Department's index.
    Gasoline costs plummeted by 8.1 percent, the biggest fall
since December 2008.
    However, the weakness in the price index extended to a
measure of underlying inflation that strips out volatile energy
and food prices. That gauge rose just 0.1 percent, and was up
only 1.7 percent from a year earlier - its smallest 12-month
advance since June 2011.
    "Further falls in U.S. core inflation in the coming months
may make some Fed officials concerned about very low inflation,
or even deflation," said Paul Dales, an economist with Capital
Economics in London. Deflation entails spiraling declines in
prices and wages and is difficult for policymakers to combat.
    Inflation has held low in large part because of weakness in
the labor market, which has kept a lid on wages and spending.
    Last week, the number of Americans filing new claims for
unemployment benefits climbed at the fastest pace in six months,
although analysts said one week's data was not enough to derail
the labor market's slow but steady recovery. 
    "If you get another week or two over 350,000, then you might
be more concerned," said Craig Dismuke, chief economic
strategist at Vining Sparks in Memphis, Tennessee.

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