Economic reports turn out worrisome data

Economic reports turn out worrisome data

The U.S. economy remains shaky, with threats looming at home and abroad, manufacturers mired in a slump and overall growth tepid.

The economy’s precarious position was underscored Thursday by a pair of government reports. Orders for durable goods—long-lasting manufactured products such as cars and televisions—tumbled 13% in August from July, the biggest monthly drop in more than three years. Much of the decrease came in orders for commercial aircraft, which often show big monthly fluctuations, but the report nonetheless provided new evidence that the once-robust factory sector is losing steam.

The manufacturing slowdown would be less worrisome if other segments of the economy were firing on all cylinders. But another report Thursday provided a separate reminder of how weak the recovery has been.

Downward Revision to GDP

Gross domestic product, the broadest measure of all goods and services produced, grew at a 1.3% seasonally adjusted annual pace in the second quarter, the Commerce Department said, down from its previous estimate of 1.7% and slower than the first quarter’s 2% pace. The revision reflected softer consumer spending and exports along with depleted farm stockpiles due to the Midwest drought.

The new reports come despite other signs the economy is improving, albeit slowly. Consumers are becoming more confident. The long-moribund housing market is finally showing signs of a nascent rebound. And the job market is slowly growing.

Thursday’s data suggested some pockets of underlying strength. Orders for nondefense capital goods excluding aircraft—a proxy for business spending on equipment and software—rose 1.1%, ending two months of declines.

Meanwhile, the number of workers filing initial jobless claims fell by 26,000 to a seasonally adjusted 359,000, the lowest level since July, the Labor Department said. The less volatile four-week moving average nudged down by 4,500 to 374,000. The Labor Department also released preliminary data showing U.S. employers added nearly 20% more jobs between March 2011 and March 2012 than initially believed.

Adding jobs is key because with exports and business spending hurting, economic growth in the remainder of the year will hinge largely on how much consumers are willing to spend. More hiring, combined with rising home prices and consumer confidence, could lead to more spending.

But so far, such progress hasn’t been strong enough to offset the external forces holding back growth. Manufacturers, in particular, are now being buffeted by the twin threats of slowing growth overseas and looming federal budget cuts at home. The biggest declines in orders came from commercial aircraft, a leading U.S. export, and the defense sector. Both are likely to face further challenges in coming months, as Europe remains in recession, growth cools in China and Washington grapples with trillion-dollar deficits.

Businesses may also be holding back amid the uncertainties of the coming presidential election and the looming “fiscal cliff,” a huge package of tax increases and government spending cuts set to take effect next year. Economists have warned that a failure to avert those would send the U.S. back into recession.

Weekly Jobless Claims Drop

“Businesses have just moved to the sideline in front of the election,” said Pierpont Securities economist Stephen Stanley. “They don’t know what their tax outlook is; they don’t know what their regulatory outlook is. If they don’t have to make a decision at this point, they’re not.”

At Virginia-based manufacturer Hooker Furniture, sales of upholstered items such as sofas are slightly improving, while demand for longer-lasting goods such as dining tables and wood desks isn’t budging. Chief Executive Paul Toms Jr. said businesses, including his own, are hunkering down as they await the outcome of the election and tax debate.

“In the short term, we’re watching every penny we spend, and we are not quick to add administrative staff or just spend a lot of money,” Mr. Toms said. “We’re questioning everything we spend day to day in our core business, which is challenging right now.”

Source: The Wall Street Journal