Manufacturing May Be Slowing as Jobs Picture Improves

Wednesday, 27 Nov 2013 11:35 AM

 

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The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, but continued weakness in business spending on capital goods suggested slower economic growth in the fourth quarter.

Initial claims for state unemployment benefits fell 10,000 to a seasonally adjusted 316,000, the Labor Department said on Wednesday. The second straight week of declines defied economists' expectations for a rise in claims to 330,000 and raised hopes for strong payroll growth in November.

"We are at a level that, if sustained, would point to solid job gains ahead. There is also a good chance that the October payroll gain may not have been an aberration," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Editor’s Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See If You Qualify)

Employers added 204,000 new jobs to their payrolls last month, more than expected, fanning speculation that the U.S. Federal Reserve might start to wind down its economic stimulus sooner rather than later.

But while the labor market picture is firming, businesses appear to be cautious about spending on capital goods.

A separate report from the Commerce Department showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 1.2 percent in October.

It was the second fall in a row after orders for these so-called core capital goods declined 1.4 percent in September. Economists polled by Reuters had expected a 0.6 percent rise.

The unexpected decrease in core capital goods orders suggested some ebbing in the manufacturing sector's recently found strength. It could also be an indication that a 16-day partial government shutdown last month hurt business confidence.

Shipments of these goods, used to calculate equipment spending for the government's measure of gross domestic product, fell 0.2 percent for a second consecutive month.

That suggested investment in equipment would probably not rise much this quarter after falling in the third quarter for the first time in a year.

Economists at Morgan Stanley trimmed their fourth-quarter GDP growth estimate by two-tenths of a percentage point to 1.2 percent on the data. Barclays lowered its growth forecast to 1.7 percent from 1.8 percent.

"Policy uncertainty and weak growth overseas have made businesses cautious," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.

At the same time, orders for durable goods — items from toasters to aircraft that are meant to last at least three years — fell 2 percent, largely because demand for civilian and defense aircraft tumbled.

Durable goods orders had increased 4.1 percent in September.

DATA DISCONNECT

There is, however, a disconnect between the government data and private surveys of national factory activity, which showed strength in October.

"The picture of manufacturing strength from survey data is not being captured in the government-collected data on new orders and this divergence is a puzzle," said John Ryding, chief economist at RDQ Economics in New York.

Stocks on Wall Street were little changed ahead of Thursday's Thanksgiving holiday. U.S. Treasury debt prices were marginally weak, while the dollar was flat against a basket of currencies.

A third report showed some moderation in the pace of factory activity in the Midwest this month.

The Institute for Supply Management-Chicago business barometer fell to 63.0 from 65.9 in October. A reading above 50 indicates expansion in the regional economy.

The index was pulled down by a slow down in new orders and order backlogs. However, a gauge of factory employment in the region surged to a one-year high, strengthening the labor market outlook.

The improving labor market tone is helping to boost consumer sentiment. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment increased to 75.1 for November, up from a final reading of 73.2 in October.

The preliminary November reading of the overall index was reported at 72.0 earlier this month.

Editor’s Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See If You Qualify)

© 2014 Thomson/Reuters. All rights reserved.

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