By Courtney Schlisserman and Bob Willis
Oct. 1 (Bloomberg) -- Manufacturing in the U.S. expanded less than anticipated by economists and more Americans filed claims for unemployment benefits, pointing to a recovery that will be slow to generate jobs.
The Institute for Supply Management’s factory gauge decreased to 52.6 in September from 52.9 in August, the Tempe, Arizona-based group said today. Fifty is the dividing line between expansion and contraction. The number of jobless claims climbed to 551,000 last week, more than economists forecast, figures from the Labor Department showed.
Coming a day before the September jobs report, the figures caused stocks to slump on growing concern the seven-month rally has outpaced prospects for economic growth. Consumer spending, boosted last quarter by government programs such as “cash for clunkers,” may not be able to keep rising as quickly once the stimulus expires and unemployment keeps climbing.
“The balance of data is still pointing to the economy getting better,” said Conrad DeQuadros, a senior economist at RDQ Economics in New York. “The consumer is still facing significant headwinds in the labor market. I wouldn’t look for the consumer to significantly boost growth over the next couple of months.”
The Standard & Poor’s 500 Index closed down 2.6 percent at 1,029.85 today in New York, a day after completing its biggest back-to-back quarterly rally since 1975. Treasury securities jumped, sending the yield on the 10-year note down to 3.18 percent from 3.31 percent late yesterday.
Unexpected Drop
The ISM index, which dropped for the first time this year, was forecast to rise to 54, according to the median of 80 estimates in a Bloomberg survey of economists. Projections ranged from 51.5 to 56. Manufacturing accounts for about 12 percent of the world’s largest economy.
“We’re still in positive territory but we’re just not advancing at quite the same rate,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “Retailers are anticipating a weak sales season and they’re playing it conservative on orders and hiring.”
The ISM report showed orders and production advanced at a slower pace last month, while the magnitude of reductions in inventories also cooled.
“The inventory correction, with the exception of a few industries,” has played out, Norbert Ore, chairman of the ISM’s factory survey, said in a press conference. “Overall, September was a good month. For the balance of the year, we should expect to see manufacturing holding this level, possibly improving from this level.”
More Claims
Last week’s jobless claims figures overshot the median estimate of economists surveyed by Bloomberg News which projected an increase to 535,000, raising concern tomorrow’s jobs report will also disappoint expectations that payroll decreases are slowing.
The Labor Department may say tomorrow that job losses in September totaled 175,000, according to the survey median, while the unemployment rate rose to 9.8 percent, the highest since 1983.
The economy has lost 6.9 million jobs since the recession started in December 2007, the most of any downturn since the Great Depression. The 216,000 drop in payrolls reported for August, meanwhile, was the smallest in a year.
Autos, Houses
So far, the Obama administration’s $787 billion stimulus plan, which included the auto incentives and an $8,000 tax credit for first-time home buyers, is giving consumers reason to buy cars and houses.
Household purchases jumped 1.3 percent in August, the largest gain since October 2001, data from the Commerce Department also showed today. Incomes climbed 0.2 percent for a second month and inflation decelerated, the report also showed.
Inflation-adjusted spending on durable goods, including autos, furniture, and other long-lasting items, jumped 5.8 percent in August, also the most since the month after the 2001 terrorist attacks. Then, the introduction of zero-percent financing to revive sales boosted spending on durable goods by 14 percent.
Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data.
Pending Sales
Lower home prices and mortgage rates combined with the first-time buyer credit have helped end the housing-market meltdown that sparked the financial crisis. The index of signed purchase agreements, or pending home sales, jumped 6.4 percent in August, a seventh consecutive increase, the National Association of Realtors said today in Washington.
The tax credit is due to expire at the end of November, raising concern sales will again slow.
Bed Bath & Beyond Inc., the largest U.S. home-furnishings retailer, last month said second-quarter profit rose 14 percent, fueled by rebounding home sales. The Union, New Jersey-based chain also increased its annual profit forecast.
Even so, “looking ahead to the remainder of our fiscal year 2009, we have assumed that the overall business climate will remain challenging,” Chief Financial Officer Eugene Castagna said on a conference call on Sept. 23.
Economists surveyed by Bloomberg earlier this month projected the economy will expand at an average 2.6 percent annual rate and grow 2.4 percent in 2010.
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