U.S. spending surges, manufacturing misses forecasts
U.S. consumer spending rose at its fastest in nearly 8 years in August, but a persistently weak labor market and below-forecast expansion in manufacturing in September could hamper a nascent economic recovery.
The latest batch of mixed data released on Thursday was yet another indication that while growth probably resumed in the third quarter after a prolonged recession, staying on a steady path could prove to be a challenge.
“While the economy is emerging from recession, recovery is likely to proceed in fits and starts rather than a continuous upward march. This uneven pattern of growth is what we’ve been seeing for the last several weeks,” said Zach Pandl, an economist of Nomura Securities International in New York.
The U.S. Commerce Department said personal spending jumped 1.3 percent in August, the largest gain since October 2001, after a 0.3 percent rise in July. Spending was up for a fourth straight month and beat expectations for a 1.1 percent rise.
Spending was likely boosted by a government-sponsored discount scheme for new motor vehicle purchases, dubbed “cash for clunkers,” which ended in August.
Optimism over the rise in spending, which normally accounts for over two-thirds of U.S. economic activity, was clouded by reports showing more people than expected applied for first-time unemployment benefits last week and manufacturing activity in September, although growing, missed expectations.
A report from the Labor Department showed initial claims for state unemployment insurance rose to 551,000 last week from 534,000 in the previous week, more than analysts’ expectations for 530,000. It was the first rise in three weeks.
Separately, the Institute for Supply Management said its index of national factory activity eased to 52.6 in September from 52.9 in August — below expectations for a reading of 54.
The disappointing data dealt U.S. stocks their worst one-day loss in three months, as major indices fell between 2 and 3 percent.
Government bond prices rallied, with the yield on the 30-year bond dropping to a five-month low.
Bond yields move inversely to prices. Government bonds are seen as a safe haven in times of economic turmoil.
“A lot of investors are trying to figure out how much the economy will slow after the surge in spending we saw in the cash for clunkers program. The question is, did that spending borrow from the future or will the gains be sustained?” said Gary Thayer, strategist at Wells Fargo in St. Louis, Missouri.
HOUSING MARKET HEALING
Reports from automakers indicated vehicle sales slumped in September, giving up some of the ground gained under the “cash for clunkers” scheme.
Detroit-based U.S. automakers expect the domestic seasonally adjusted annualized rate of auto sales to come in at 9 million to 9.5 million vehicles in September.
Filed under: term by TheDoor