US fac­to­ries show signs of sta­bi­liza­tion, con­sumers hi­ber­nate

The Pak Banker - - BUSINESS -

U.S. man­u­fac­tur­ing ac­tiv­ity con­tracted in Jan­uary for a fourth straight month as fac­to­ries grap­pled with a strong dol­lar and lower oil prices forced en­ergy firms to fur­ther cut spend­ing, but the pace of the de­cline ap­peared to be slow­ing.

While other data on Mon­day showed con­sumer spend­ing was flat in De­cem­ber, a jump in sav­ings to a three­year high of­fered hope that con­sump­tion would re­bound in the com­ing months. "The bad news is man­u­fac­tur­ing is still con­tract­ing, but the good news is there are some signs of sta­bi­liza­tion. There are still some dark clouds hov­er­ing over the first quar­ter and we hope con­sumers will re­turn as sav­ings are high," said Thomas Costerg, an econ­o­mist at Stan­dard Char­tered Bank in New York.

The In­sti­tute for Sup­ply Man­age­ment (ISM) said its in­dex of na­tional fac­tory ac­tiv­ity in­creased 0.2 per­cent­age point to a read­ing of 48.2 last month. A read­ing below 50 sig­nals a con­trac­tion in fac­tory ac­tiv­ity.

The buoy­ant dol­lar has com­bined with tepid global de­mand to un­der­mine U.S. ex­ports. At the same time, busi­nesses are work­ing to re­duce a huge pile of un­sold mer­chan­dise clog­ging ware­houses, which has left lit­tle scope to place new or­ders with fac­to­ries. But there are rays of hope for the sec­tor, which ac­counts for 12 per­cent of the econ­omy. Last month, more fac­to­ries re­ported an in­crease in or­ders and pro­duc­tion. In ad­di­tion, in­ven­tory lev­els and or­der books ap­peared to be sta­bi­liz­ing.

How­ever, man­u­fac­tur­ing em­ploy­ment con­tin­ued to de­cline and ex­port or­ders weak­ened from the prior month. Fac­to­ries with close links to the slump­ing oil and gas sec­tor re­ported on­go­ing chal­lenges. The sur­vey showed some sup­pli­ers re­ported that "fil­ing for bank­ruptcy and re­duc­ing their work­force is be­com­ing an in­creas­ing risk."

The signs of sta­bi­liza­tion in man­u­fac­tur­ing were also cap­tured in a sepa- rate re­port from data firm Markit, which showed its U.S. man­u­fac­tur­ing PMI re­bounded last month from De­cem­ber's 38-month low. That sur­vey also re­ported faster growth in pro­duc­tion and new or­ders. "The con­trac­tion in man­u­fac­tur­ing is on­go­ing but no longer get­ting worse," said Steve Blitz, chief econ­o­mist at ITG In­vest­ment Re­search in New York. "If, in fact, the re­cent sta­bil­ity in new or­ders fol­lows with some im­prove­ment, in­ven­tory has been worked off enough for in­creased new or­ders to gen­er­ate im­proved growth rates for pro­duc­tion."

In a third re­port, the Com­merce Depart­ment said con­sumer spend­ing was un­changed in De­cem­ber af­ter in­creas­ing 0.5 per­cent in Novem­ber. Spend­ing on long-last­ing man­u­fac­tured goods such as au­tos dropped 0.9 per­cent. Pur­chases of non­durable goods, in­clud­ing ap­parel, also fell 0.9 per­cent.

Con­sumer spend­ing, which ac­counts for more than two-thirds of U.S. eco­nomic ac­tiv­ity, in­creased 3.4 per­cent in 2015 af­ter ad­vanc­ing 4.2 per­cent in 2014. U.S. stocks were trad­ing lower as weak Chi­nese data re­newed fears about a global slow­down and oil prices re­sumed their slide. The dol­lar weak­ened against a bas­ket of cur­ren­cies. Prices for U.S. govern­ment debt also were lower.

Amid weak con­sump­tion, in­fla­tion re­treated in De­cem­ber, with a price in­dex for con­sumer spend­ing slip­ping 0.1 per­cent af­ter tick­ing up 0.1 per­cent in Novem­ber. In the 12 months through De­cem­ber, the per­sonal con­sump­tion ex­pen­di­tures (PCE) price in­dex, how­ever, rose 0.6 per­cent - the largest in­crease since De­cem­ber 2014. Yearover-year in­fla­tion rates are ris­ing as the weak read­ings dur­ing the year drop out of the cal­cu­la­tion.

Ex­clud­ing food and en­ergy, prices were un­changed af­ter ris­ing 0.2 per­cent in Novem­ber. The so-called core PCE price in­dex, the Fed­eral Re­serve's pre­ferred in­fla­tion mea­sure, in­creased 1.4 per­cent in the 12 months through De­cem­ber. Core PCE is below the U.S. cen­tral bank's 2 per­cent tar­get.

Work­ers con­duct se­cu­rity checks on PetroChina's pipe­line equip­ment.

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