US data show loss of momentum

Posted on May 31, 2012

First-quarter growth for the US was revised down from an annualised rate of 2.2 per cent to 1.9 per cent in a day of gloomy data on the world’s largest economy.

The downward revision to gross domestic product came alongside a weak jobs number from the payrolls processing company ADP and a rise in new claims for unemployment insurance.

    Taken together, the soft data make temporary explanations – such as unseasonal weather earlier this year – less likely and make it more probable that the economy has lost momentum. The weak numbers increase the emphasis on official data for non-farm payrolls due tomorrow.

    There was one sign of hope: gross domestic income, an alternative measure of national output that has some advantages over GDP, rose 2.7 per cent in the first quarter compared with 2.6 per cent in the last quarter of 2011.

    That is still not strong but is more consistent with falling unemployment in the early months of this year. The US Federal Reserve looks to GDI as a way to test the accuracy of the GDP figures. The strength of GDI compared with GDP may give it some comfort on the health of the economy.

    The downward revision to GDP reflected a smaller build-up of inventories, higher imports than previously thought, and even lower spending by state and local governments than initially estimated.

    New claims for unemployment insurance, the highest-frequency data on the labour market released every week by the Department of Labour, rose 10,000 to 383,000 for the week to May 26.

    Analysts surveyed by Bloomberg had expected the number of claims to stand at the 370,000 mark. The prior week’s level of 370,000 was revised up to 373,000.

    The four-week moving average, which smooths out seasonal quirks, rose 3,750 to 374,500, but this is still below 384,250 reported at the end of April.

    “On balance, the disappointing tone of this report is consistent with the overall trend in the recent data flow, which continue to show weakening growth momentum,” said Millan Mulraine, at TD Securities in New York.

    Continuing claims for benefits moved lower, down 36,000 to 3.242m for the May 19 week.

    Some analysts were a little more positive. “The labour market has come of the boil a little since spring arrived, but the slowdown is much more modest than the one we saw last year, “ said Paul Ashworth, chief US economist at Capital Economics.

    Figures from the private sector showed it created only 133,000 jobs in May, according to figures from the private payroll processing company ADP. That compares with a downwardly revised estimate of 113,000 in April, from the originally reported 119,000.

    The figures – which come ahead of official payrolls data on Friday that also cover the government sector – suggest that a recent slowdown in jobs growth was not just due to unseasonal weather but may reflect more fundamental weakness in the economy.

    “While May’s increase was the 28th consecutive monthly advance, it nonetheless reflected a notable slowdown in the recent pace of hiring,” said Joel Prakken, chairman of Macroeconomic Advisers, a research firm that helps to compile the data.

    “The sharpness of the deceleration seems consistent with other incoming data suggesting the economy, weighed down by heightened uncertainty over the European financial crisis and by growing concerns about domestic fiscal policy, slowed early in the year.”

    The ADP figure closely tracks the official payrolls figure over time, although it tends to be more volatile.

    “If the official payroll number is in line with ADP – and statistically speaking, ADP is by far the best indicator of payrolls on a month-to-month basis – then May will be the third straight soft month,” said Ian Shepherdson, chief US economist at High Frequency Economics.

    He reiterated the impact of high petrol costs between December and April on employment growth, but said “with prices now barrelling back down, we look for better numbers in the summer.”

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