US factory orders slipped in April
Investment weak, Q1 productivity unchanged
Orders to US factories fell in April for the first time in five months amid declining demand for heavy machinery, iron and steel, and commercial airplanes. A key category that tracks business investment was weak for a third month. Factory orders edged down 0.2 percent in April after a 1 percent increase in March, the Commerce Department said yesterday. It was the first decline since a 2.3 percent drop last November. A category that serves as a proxy for business investment posted a tiny 0.1 percent gain. Orders in this closely watched category had been flat in March.
The weakness in April was expected to be temporary, given hopes that manufacturing has started to bounce back in recent months from a prolonged slump last year. Orders for durable goods - items ranging from bicycles to battleships that are expected to last at least three years - dropped 0.8 percent in April. Demand for nondurable goods, a category that covers such things as paper, chemicals and food, rose 0.4 percent in April. Orders for transportation equipment in April fell 1.4 percent, as a 0.6 percent rise in demand for motor vehicles was offset by a 9.1 percent drop in orders for commercial aircraft, a volatile category. Demand for machinery contracted 0.7 percent, reflecting a 16 percent plunge in demand for construction machinery. Orders for primary metals fell 0.7 percent, with demand for iron and steel down 2 percent.
Despite the April drop, American manufacturing has bounced back in recent months from a slump early last year. American manufacturing was hurt early last year and in late 2015 by cutbacks in the energy industry and a strong dollar that makes US products pricier overseas.
Labor costs down
US worker productivity was not as weak as initially thought in the first quarter, but the persistently soft trend is an obstacle to faster economic growth. The Labor Department said on Monday nonfarm productivity, which measures hourly output per worker, was unchanged in the last quarter. It was previously reported to have declined at a 0.6 percent annualized pace.
The government also reported that the growth in labor costs at the start of the year was not as strong as reported in May, which could cast doubts on the tightening labor market’s ability to unleash robust wage growth. The revision to first-quarter productivity was in line with economists’ expectations. Productivity increased at an unrevised 1.8 percent pace in the fourth quarter.
US financial markets were little moved by the report. Compared to the first quarter of 2016, productivity grew at a 1.2 percent rate, pointing to some improvement.
Productivity has increased at an average annual rate of 0.6 percent over the last five years, below its long-term rate of 2.1 percent from 1947 to 2016, indicating that the economy’s potential rate of growth has declined.
That suggests the Trump administration could struggle to achieve its 3 percent annual gross domestic product growth target. The economy grew at a 1.2 percent pace in the first quarter. It grew 1.6 percent in 2016 and annual GDP growth has not exceeded 2.6 percent since the 2007-09 recession ended.
Economists blame low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, for the weakness in productivity. There are also perceptions that productivity is being inaccurately measured, especially on the information technology side. Companies have been hiring more workers to maintain output. First-quarter output per worker was revised up to a 1.7 percent growth rate from the previously reported 1.0 percent pace. The increase in output came as total hours worked increased at an upwardly revised 1.7 percent rate. Hours worked were previously reported to have risen at a 1.6 percent rate in the first quarter. Unit labor costs, the price of labor per single unit of output, increased at a 2.2 percent pace in the first quarter instead of the previously reported 3.0 percent rate. Compared to the first quarter of 2016, unit labor costs rose at a 1.1 percent rate.
Fourth-quarter unit labor costs were revised down to show them declining at a 4.6 percent rate from the previously reported 1.3 percent pace of increase. Wage growth remains sluggish despite the unemployment rate being at a 16-year low of 4.3 percent. Hourly compensation increased at a 2.2 percent rate in the first quarter rather than the 2.4 percent pace reported in May.
Hourly compensation rose at a 2.3 percent rate from a year ago, down from the 3.9 percent pace estimated last month. — AP