4 June 2001, 13:47 OUTLOOK US data to confirm stark weakness in manufacturing, job market
WASHINGTON (AFX) - US economic data to be released in the coming
week will confirm trends that have now been well established, analysts
said -- a recession in manufacturing, and pronounced weakness in the
labor market.
"The broad spectrum of the data really suggest more of the same:
much weakness coming from the manufacturing sector," said Rick
MacDonald, economist at Standard & Poors' MMS International.
Factory orders are seen falling in April, reflecting the already
announced drop in durable goods orders.
This would fall in step with other indicators of manufacturing
weakness, including the 124,000 drop in manufacturing payrolls in May,
and another decline in the National Association of Purchasing
Management (NAPM) business index of business activity in May to 42.1,
from 43.2 in April -- still well below the break-even point of 50.
"Manufacturing remains in pretty bad shape," MacDonald said,
predicting that "there won't be a turnaround any time soon."
The factory orders report is relevant because it indicates business
planning with regard to future capital spending, noted Mike Moran,
chief economist at Daiwa Securities America.
A decline in orders indicates further depressed conditions in
capital spending, he said.
"It's very tough to say when (capital spending will turn around),"
Moran said, adding that anecdotal reports from business leaders
indicate "it could be a long way off."
Moran, along with many economists, sees consumption growth rising
into the next quarter with the combined impact of aggressive monetary
easing and a tax cut that will return about 55 bln usd to taxpayers
later this year.
However, this will probably be only a temporary boost, and
businesses are still likely to be too cautious about overall demand
conditions to increase business investment, he said.
Moran concluded a confirmed turnaround in capital spending may not
come until well into next year.
Meanwhile, further labor market weakness is seen emerging from the
weekly jobless claims figure, due Thursday, with a third consecutive
week of claims above 400,000.
Although the U.S. unemployment rate fell in May to 4.4 pct from 4.5
pct the previous month, economists cautioned that this masked signs of
underlying weakness.
"I don't think that can be utilised as a bullish signal," said Ian
Morris, economist at HSBC Securities in New York.
Morris noted that it was only through a contraction in the overall
labor force that the unemployment rate declined -- not through a rise
in actual employment.
In fact, civilian employment fell in the month by 251,000 jobs.
A weekly jobless claims figure above 400,000 would be consistent
with negative monthly non-farm payrolls growth, Morris said.
In May, non-farm payrolls dropped 19,000. A decline in June would
make three consecutive monthly declines in jobs, Morris noted.
Weekly jobless claims will be a good indicator for pointing to a
turnaround in the labor market, said Bank of Montreal economist Tim
O'Neill, when they do eventually start coming down.
Weekly claims "are a good, distant early warning on where the
overall job market is going," he said, adding that a turnaround is
"what I'd be looking for in terms of an earlying warning that we're
starting to pull out of softness."
The consensus forecast is for a slight drop of 3,000 in weekly
jobless claims, to 416,000.
Also to be released in the week, a final, revised, look at
first-quarter productivity should see a larger than previously
estimated decline.
The consensus forecast is for a revised 0.9 pct drop in
productivity for the first quarter from the previous quarter, at an
annualised rate, down from a 0.1 pct drop in the preliminary estimate.
However, most analysts said this is simply a reflection of the
downward revision in GDP for the quarter, and is therefore a cyclical
phenomenon, rather than a sign that the strong secular productivity
growth of recent years is over.
First-quarter GDP, first reported at a 2.0 pct increase, was
revised to show just a 1.3 pct rise.
"I think the decline (in productivity) is cyclical. I do think the
secular trend is upwards," said economist Joe Abate at Lehman Brothers,
who predicted a rebound in productivity growth to 2.5 pct in the second
quarter.
O'Neill agreed: "long run productivity growth is still seen at 2.5
pct, which is about the same as what we'll get year-on-year (for the
first-quarter)."
"I wouldn't get overly worried about this at this point," he
concluded.
The following are the consensus forecasts of Wall Street economists
for indicators to be released this week:
REVISED Q1 LABOR PRODUCTIVITY, Tuesday (8.30 am): Labor
productivity is expected to be revised to show a 0.9 pct drop in the
final reading for the first quarter, down from a 0.1 pct decline in the
preliminary estimate. This is also down from a 2 pct rise in the fourth
quarter of last year.
Unit labor costs are seen growing at a revised 6 pct pace in the
first quarter, up from 5.2 pct in the preliminary estimate, and up from
a 4.5 pct rise in the fourth quarter of 2000.
HSBC's Morris cautioned that the inflationary implications of the
strong rise in unit labor costs could contribute to restraining the
Federal Reserve to a 25 basis point interest rate cut at the next
policy meeting on June 26-27.
APRIL FACTORY ORDERS, Tuesday (10.00 am): Factory orders are seen
falling 2.8 pct in April, after rising by 1.8 pct in March. The report
is expected to reflect April durable goods orders, which fell 5.0 pct.
MAY NAPM NON-MANUFACTURING INDEX, Tuesday (10.00 am): The National
Association of Purchasing Management survey of non-manufacturing
business activity is expected to rise in May to 48.3 from 47.1 in
April.
This is still below 50, which indicates the sector is contracting.
However, economists note that other indicators of non-manufacturing
activity, such as job growth in the service sector, suggest that
outside of manufacturing, the US is n ot in recession, MacDonald at MMS
said.
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Initial claims for
unemployment insurance are seen falling 3,000 to 416,000 in the week
ended June 2, after rising by 8,000 to 419,000 the previous week.
Despite the drop, analysts noted that a third consecutive week of
claims above 400,000 is a sign of continued softness in the labor
market.
APRIL WHOLESALE INVENTORIES, Thursday (10.00 am): Inventories at
the wholesale level are expected to rise a slight 0.1 pct in April,
after rising the same percentage in March.
APRIL CONSUMER CREDIT, Thursday (3.00 pm): Consumer credit is seen
rising by 7.9 bln usd in April, after rising by 6.1 bln in March.
This likely expansion in credit will reflect continued increases in
retail sales and overall consumer spending, Bank of Montreal's O'Neill
said.
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