NEW YORK (Reuters) - Business activity in the U.S. Midwest grew much less than expected in May and consumers turned more pessimistic as well, reports showed on Tuesday.
KEY POINTS: * The Chicago Purchasing Management Index fell to 56.6 in May, below the consensus of 62.6 and 67.6 in April. * The employment component of the index fell to 60.8, from 63.7 in April. New orders sank to 53.5 from 66.3. A reading above 50 indicates expansion in the regional economy. * The Conference Board, an industry group, said its index of consumer attitudes fell to 60.8 from a revised 66.0 in April. The reading was below economists’ forecasts for 66.5. * April was originally reported as 65.4. The expectations index tumbled to 75.2 from 83.2, while the present situation index edged down to 39.3 from 40.2.
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:
“The significant slowing is probably influenced by temporary disruptions to the auto industry due to the disaster in Japan. New orders led the slowing.”
CONSUMER CONFIDENCE: “The present situation shows a rise in the proportion seeing jobs as plentiful, to 5.6% from 5.1%, but this is outweighed by a larger rise in those seeing jobs as hard to get, to 43.9% from 42.4%. This could be a warning of slower employment growth in May, even if the mixed breakdown of the employment data suggests some sectors have proved resilient to higher energy prices.
“The appraisal of present business conditions deteriorated on both sides with fewer seeing them as good and more seeing them as bad. The expectations breakdown deteriorated on both sides for business conditions, jobs and income, thus providing a broad based deterioration, but one that may be to a large extent based be based on peak energy price levels that have now come off those highs.”
MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:
“It is pretty ugly, although it is hard to make too much out of Chicago PMI, as it is heavily weighted by the auto sector, and we know that we had some production cuts due to parts shortages that came out of the Japanese earthquake. That is probably a good part of this and it is hard to assign too much more to it. The employment component did not fall as much as some of the other components and I think it supports the notion that it is a temporary setback.
“The stock market is just happy that May is going away. We have had a huge rally in Treasuries and the dollar is weak. Odds are that it is this big bounce back in oil that is going along with the dollar.”
TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK
“Very weak outcome. Even the underlying detail, all very weak. What we probably have to keep in mind is that some of this weakness is related to auto disruptions relating to the earthquake in Japan.
“We’re probably past the peak now in manufacturing so we would expect most data points to be on the soft side from now on — though they will remain above break-even.”
MARKET REACTION: STOCKS: U.S. stock indexes trimmed gains BONDS: U.S. bond prices cut losses modestly FOREX: The dollar was slightly weaker against the euro