Tags: Manufacturing | economy | slower | factory

Experts: Slower Manufacturing, Dim Sentiment Pushing Economy Into ‘Ugly Situation’

Friday, 15 June 2012 09:56 AM EDT

Manufacturing output contracted in May for the second time in three months and families took a dimmer view of their economic prospects in early June in signs the American economy's recovery is on shaky ground.

Factory production shrank 0.4 percent last month, the Federal Reserve said on Friday.

"It's more convincing evidence that the economy is stuck in low gear," said Joe Manimbo, a market analyst at Travelex Global Business Payments.

Editor's Note: The Final Turning Predicted for America. See Proof.

Until recently, manufacturing had been a buttress of strength for the U.S. economy, helping it to resist headwinds from Europe's snowballing debt crisis.

But in May, output sank at American plants making everything from cars to computers while another report showed factory activity in New York state cooled in early June.

Now household confidence in the economy is falling amid worries about deterioration in the jobs market and Europe's debt crisis.

That poses a big threat to President Barack Obama's chances of winning reelection in November. It could also lead consumers to cut back on spending, which would reduce economic growth.

"Consumers are scared," said Sharon Stark, managing director at Sterne Agee in Birmingham, Alabama.

U.S. consumer sentiment fell in early June to a six-month low, and a gauge of household confidence in the economy's future fell, too.

The Thomson Reuters/University of Michigan's index on consumer sentiment fell to 74.1 in June, falling short of even the most pessimistic forecast in a Reuters poll.

While manufacturing is an anchor of the economy, consumer spending is its foundation, accounting for about two thirds of gross domestic product.

Economists at Capital Economics reckon the drop in consumer sentiment is consistent with growth in consumer spending slowing to a mere 1 percent annual rate in the second quarter, down from 2.7 percent in the first three months of the year.


The slackening U.S. recovery and a worsening debt crisis in Europe have bolstered expectations of a further easing of monetary policy by the Fed, although economists are divided on whether the central bank will act when it meets on Tuesday and Wednesday.

Hiring by U.S. employers has slowed for four straight months, while retail sales contracted in May and new applications for jobless benefits have risen for five of the last six weeks.

Also looming over the outlook, Europe's snowballing debt crisis threatens to send the global economy into recession.

On Friday, U.S. stocks rose on optimism major world central banks will take coordinated action if the closely watched election in Greece this weekend results in market turmoil.

Within the Fed's report on U.S. industry in May, the softness in the factory sector was widespread.

Output for durable — or long-lasting — goods dropped 0.5 percent as auto production slid 1.5 percent. Production for nondurables fell 0.2 percent.

Total industrial output, covering factories, mines and utilities, declined 0.1 percent. Analysts polled by Reuters had expected industrial production to rise 0.1 percent.

And in a sign the factory sector's weakness could continue into June, the New York Federal Reserve Bank's "Empire State" index fell to 2.3, a 15-point drop from the month before and the lowest level since November 2011.

That was far below economists' expectations of 13, although the level still points to some growth.

"That is another indication that the U.S. economy is slowing," said Justin Hoogendoorn, a fixed income strategist at BMO Capital Markets in Chicago. "It's an ugly situation."

Editor's Note: The Final Turning Predicted for America. See Proof.

© 2024 Thomson/Reuters. All rights reserved.

Friday, 15 June 2012 09:56 AM
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