published Thursday, September 20th, 2012

US economy hobbled by weak hiring, manufacturing

  • photo
    John Gooch files for unemployment at the Georgia Department of Labor office in Dalton, Ga.
    Staff File Photo by Margaret Fenton

WASHINGTON - A trio of reports Thursday offered a reminder that the U.S. economy is struggling to grow and add jobs.

The number of people seeking unemployment benefits last week stayed near a level that signals only weak hiring in September. Manufacturing shrank for a fifth straight month in the Philadelphia region, a sign that weaker global growth has hurt demand for American-made goods. And a measure of future economy activity declined for the second time in three months.

The data followed a poor month of hiring in August and the Federal Reserve's move last week to launch new stimulus measures to give the hobbled recovery a jolt.

"There certainly doesn't appear to be much improvement in the performance of the economy," said Sam Bullard, senior economist at Wells Fargo Securities. "Manufacturing continues to soften and decelerate. We shouldn't expect to see substantial gains in hiring or output from manufacturers any time soon."

Thursday's reports showed:

• Weekly applications for unemployment benefits fell by only 3,000 last week to a seasonally adjusted 382,000, the Labor Department said. The four-week average, a less volatile measure, rose for the fifth straight week to 377,750. Applications, which are a proxy for layoffs, typically need to fall below 375,000 consistently to signal the job market is strong enough to lower unemployment.

• The Federal Reserve Bank of Philadelphia says its September index of regional manufacturing activity stayed below zero, which signals contraction in the market. While the index rose to -1.9, it has been negative since May. Nearly 23 percent of firms in the region reported declines in activity this month, only slight improvement from 30 percent of firms in August. The region includes firms in Pennsylvania, Delaware and New Jersey.

• The Conference Board said its index of leading indicators dipped 0.1 percent in August. The report noted that manufacturing orders, consumer confidence and average weekly manufacturing hours all slipped. The index is intended to anticipate economic conditions three to six months out.

Hiring has languished since winter, and the unemployment rate remains elevated at 8.1 percent.

U.S. manufacturing, which had helped pulled the economy out of the Great Recession three years ago, has weakened since the spring. Factories have been hurt by a decline in consumer spending and slower global growth that has cut demand for U.S. exports.

Many companies are also worried that the economy could worsen if Congress fails to reach a budget deal before the end of the year to prevent taxes from rising and deep cuts in spending.

"Businesses clearly remain reluctant to aggressively boost their workforces," said Jim Baird, chief investment strategist at Plante Moran Financial Advisors, in a note to clients.

The housing market has been one of the few bright spots this year. Sales of previously occupied jumped in August to the highest level in two years, the National Association of Realtors said Wednesday. The market has been helped by steady price increases and rock-bottom mortgage rates, which fell again this week.

The average rate on the 30-year fixed mortgage touched a record low of 3.49 percent this week, and the 15-year mortgage dropped to a record 2.77 percent, mortgage buyer Freddie Mac reported Thursday.

The rates declined after the Fed announced that it plans to spend $40 billion a month to buy mortgage bonds for as long as it thinks necessary to make home buying more affordable.

Mark Vitner, senior economist at Wells Fargo, said the stimulus likely helped lower mortgage rates this week and will probably push rates down even further over the next six to nine months.

"Housing looks like it's going to provide a significant lift to the economy over the next year," Vitner said.

Still, overall economic growth remains weak. The economy grew at a tepid 1.7 percent annual rate in the April-June quarter. The Fed said it expects growth will stay at or below 2 percent this year, but is slightly more hopeful about the next two years

Bullard is not. He predicts growth will hover around 1.8 percent next year.

"We have an economy that is still struggling with issues like high unemployment and budget deficits and it is going to take some time to address that," Bullard said.

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