NEW YORK, May 1 - Surprisingly grim figures on U.S. manufacturing and jobs on Thursday showed the end of fighting in Iraq proved no panacea for the economy. Also on Thursday, automakers reported new car and truck sales dropped in April, despite an aggressive discounting campaign. Even productivity, applauded as a paradigm of the new economy, grew at a slower-than-expected pace in the first quarter, while spending on new construction fell unexpectedly in March. The reports painted a grim picture of the economy ahead of Friday's payrolls report for April.
"The economy is running at recessionary levels again," said Christopher Low, chief economist at FTN Financial. "There's across-the-board weakness. It does not bode well for tomorrow's jobs report." Leading Thursday's reports, the Institute for Supply Management said manufacturing contracted for a second straight month in April. Its main index slid to 45.4 from 46.2 in March. Analysts were looking for a nudge up to 47.3, but still below the 50 level that separates expansion from contraction. New orders hit an 18-month low. "Unless the ISM shows a meaningful rise next month, prolonged weakness in manufacturing would become a serious concern for significant improvement in near-term economic activity," said Anthony Karydakis, senior financial economist at Banc One Capital markets in Chicago. Also on Thursday, the Labor Department said claims for jobless benefits eased only slightly to 448,000 last week and revised its figure for the previous week upwards to 461,000. That was above analysts' forecast of a dip to 433,000 and the eleventh straight week above 400,000. Claims need to be well below that level for overall employment growth and a decline in the jobless rate.
"These are very high levels for claims and it makes it very hard to construct a case for a positive jobs report," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets. Analysts are bracing for a drop of 53,000 in payrolls when the department releases its April report on Friday, which would bring losses in the last three months to over 500,000. Such an outcome would test the tolerance of Federal Reserve Chairman Alan Greenspan, who just a day ago was voicing hopes for a strong recovery now the war is out the way. "It will reinforce the idea that a rate cut by the Fed is still on the table, maybe not next week but some way down the road, if the early promises of improving sentiment don't start to revive demand," said James Glassman, senior economist at JP Morgan Chase. Financial markets have written off any chance of a rate cut at the Fed's policy meeting next Tuesday, but there is growing talk the central bank might reinstate its assessment of risks -- with a bias toward economic weakness.
WEAK AUTO SALES
Also on Thursday, Detroit's Big Three automakers reported a sharp drop in sales for April, outweighing mixed U.S. sales by foreign automakers. Among them, General Motors Corp.'s sales excluding Saab fell 8.9 percent despite what it described as its most aggressive incentive program ever. In another report on Thursday, the Labor Department said U.S. non-farm productivity rose by 1.6 percent in January through March, much less than the 2.1 percent average forecast of analysts in a poll. Figures on construction spending confirmed housing as one of the only bright spots in the economy, but public sector construction suffered its biggest fall in a year, suggesting cost-cutting by states could be a drag on the economy. Spending on home building hit a record high at an annual $454 billion in March, but overall spending dropped 1 percent to $868.5 billion, the Commerce Department said.//