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Reports suggest slowing, still growing economy
Updated 6/1/2006 11:10 AM ET E-mail | Save | Print | Subscribe to stories like this
SIGNS OF WEAKNESS
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WASHINGTON (Reuters) — Economic reports out Thursday suggest a slowing, but still growing, economy, and that news could temper concern that the Federal Reserve will keep raising interest rates.
• The nation's manufacturing sector expanded in May, but at a slower rate than analysts expected.
• Business productivity in the first quarter of the year was stronger than first estimated and labor cost pressures were less.
• Construction suffered its first setback in 10 months in April as residential homebuilding dropped by the largest amount in more than two years.
• Pending home sales fell in April for a third month, indicating that the real estate slowdown continues.
• The number of people filing claims for unemployment benefits unexpectedly increased to 336,000 last week, a gain of 7,000 from the previous week. The jobless claims increase and several large announced layoffs should ease fears of a too-hot labor market.
ON DEADLINE BLOG: Read the reports
The details:
Manufacturing slips
The Institute for Supply Management, a trade group based in Tempe, Ariz., said its manufacturing index registered 54.4 in May, down from 57.3 the month before and below the 56.5 reading analysts had expected.
A reading of 50 or more indicates manufacturing is expanding, below 50 indicates contraction.
The May figure represented the 36th consecutive month of growth.
Norbert Ore, chairman of the ISM's survey committee, said "the slower growth is evidenced by a significant loss of momentum in the last four months as the new orders index has slipped."
He added that rising prices, driven by increases in raw materials, remain a concern.
The prices paid index, which measures inflationary pressures within the factory sector, spiked to 77.0 from 71.5.
Productivity and unit labor costs improve with revisions
Non-farm business productivity was revised up to a 3.7% annual rate the first three months of the year, vs. the 3.2% initially reported, the Labor Department said.
And unit labor costs, a key gauge of price and profit pressures, rose at a 1.6% annual rate in the first quarter, a downward revision from the 2.5% gain reported last month. The department also revised fourth-quarter unit labor costs sharply lower, to a 0.6% drop from the previously reported 3% rise.
Economists expected first-quarter productivity would be revised up to an even stronger 3.9% gain, but the downward revision to unit labor costs was sharper than anticipated. Economists had looked for unit labor costs, the cost of labor for any given unit of production, to increase at a 1.9% pace.
Unit labor cost figures are revised monthly as more complete data become availabale on worker compensation.
The Labor Department said hourly compensation rose at a 5.3% annual rate the first three months of the year, compared with the 5.7% gain first reported. Compensation actually dropped 0.9% in the fourth quarter of last year, marking a big revision from the previously reported 2.7% rise.
Better-contained unit labor costs suggest the labor market is generating less inflationary pressure than had been feared. Over the past year, unit labor costs have edged up just 0.3%.
Construction spending and pending home sales drop
The Commerce Department said construction spending dipped 0.1% in April, the first setback since June 2005, with much of the weakness coming from a 1.1% fall in residential construction, biggest drop in that sector since January 2004.
The report was one of the strongest signs yet that the nation's five-year housing boom is cooling, a development that reflects results of a campaign by the Federal Reserve to boost interest rates as a way of slowing the economy and keeping inflation under control.
The Pending Home Sales Index, based on contracts signed in April, stood at 111.8, down 3.7% from March and 11.7% below a year ago, according to the National Association of Realtors.
The April index also was below expectations of 115.3.