U.S. economic data looks better on closer inspection
Washington • At first glance, a batch of U.S. economic data released Thursday looked dispiriting. Companies slashed orders for factory goods. The government cut its most recent growth estimate. And fewer people signed contracts to buy homes.
Yet a peek beneath the headlines, and a separate report on applications for unemployment aid, suggested that the economy is sturdier than it might appear.
"Don't panic," Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note.
The data released Thursday showed that:
Companies cut orders for long-lasting goods by 13.2 percent in August. The drop reported by the Commerce Department was the steepest in more than three years, but it was caused mainly by a plunge in volatile aircraft orders. Excluding transportation equipment, orders fell just 1.6 percent. And a category that reflects business investment plans rose 1.1 percent its first increase since May.
The economy grew at a scant 1.3 percent annual rate in the April-June quarter. That was down from the 1.7 percent rate the government had previously estimated. But the downward revision was due largely to the Midwest drought, which cut farm production. Once the drought eases and crop yields rebound, U.S. farms should boost growth, Ashworth noted.
The number of Americans who signed contracts to buy previously occupied homes fell in August from a two-year high in July. The National Association of Realtors said its index of sales agreements declined to 99.2, just below the reading of 100 that's considered healthy. Still, the index is 10.7 percent higher than a year ago.
Investors appeared to shrug off the reports and focused instead on Spain's plan to slash its budget to show it can meet deficit-reduction targets. The Dow Jones industrial average closed up 72 points. Broader stock indexes also rose.
Although the economy looks sturdier than some feared, it's being slowed by chronically high unemployment and stagnant wages. Those weaknesses represent risks to President Barack Obama in his re-election race against Mitt Romney. The economy will be the focus of Wednesday's presidential debate, the first of three debates before the Nov. 6 election.
The Obama campaign received some campaign ammunition Thursday. The Labor Department said hiring was stronger from April 2011 through March 2012 than previously estimated. The economy created 386,000 more jobs in that 12-month period. That means the White House can now claim the economy has added jobs under Obama a net gain of about 100,000.
Obama prefers to focus on job creation by private employers because they began reporting net hiring gains in February 2010. That total is now put at 5.1 million, up from a previously estimated 4.6 million.
In contrast to private employers, the public sector has been cutting jobs for the past three years. And the United States still has about 4 million fewer jobs than before the Great Recession.
Still, the economy is benefiting from growing confidence that it's on the right track. Consumer confidence jumped this month to its highest level since February. And steady gains in home prices, along with record-low mortgage rates, have helped fuel a modest recovery in housing.
Both trends could boost consumer spending, which drives about 70 percent of growth.
"Consumer confidence is going up, vehicle sales have been solid, home sales are up and retailers are reporting sales gains," said Joel Naroff, president of Naroff Economic Advisors.
Naroff forecasts that consumer spending will pick up and growth will accelerate to an annual rate of 3 percent in the October-December quarter.
Other economists are less optimistic. Most say growth will hover near or below 2 percent. That's too slow to lower the unemployment rate, which was 8.1 percent in August.
And some, like Michelle Meyer, an economist at Bank of America Merrill Lynch, worry that businesses will rein in spending further. Meyer expects growth to slow in the final three months of the year to an annual rate of just 1 percent, among the lower end of economists' forecasts.
A survey of chief executives released this week found a sharp drop in the number of large companies that plan to step up hiring or boost investment in the next six months. They cited worries over tax and budget policies in the United States and slower growth in Europe and China.
"We are basically in a race between consumers and businesses," said Sal Guatieri, an economist at BMO Capital Markets. "Will consumers continue to pick up their spending and cheer businesses up so that they will start hiring and investing more? Or will the gloom among businesses curb hiring further and cause consumers to pull back on their spending?"
One government report Thursday offered hope that the job market will strengthen. Weekly applications for unemployment benefits plunged 26,000 to a seasonally adjusted 359,000. That's the lowest level in two months. And the four-week average fell to 374,000.
Applications for unemployment aid reflect the pace of layoffs. When they consistently fall below 375,000, it typically indicates that hiring is strong enough to lower the unemployment rate.
Most economists expect only modest gains when the government releases the September employment report next week. The forecast is that employers added roughly 100,000 jobs, about the same as in August.