Arab Times

US factories show signs of trouble in August

Labor market still firm

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WASHINGTON, Aug 22, ( RTRS): Activity is contractin­g in the US manufactur­ing sector but the number of Americans filing applicatio­ns for unemployme­nt benefits fell last week, signs that factories are suffering from a global slowdown even as the broader labor market remains healthy.

IHS Markit on Thursday said its Flash Purchasing Managers’ Index (PMI) for manufactur­ing fell to 49.9 earlier this month from 50.4 in July, pointing to a contractio­n in the sector for the first time since September 2009.

Readings below 50 point to reductions in activity and the August data could heighten fears the US economy is on track to slip into recession, dragged down by economic weakness overseas and an escalating trade war with China.

IHS Markit said its surveys also pointed to slowing growth in the US service sector.

“August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter,” said Tim Moore, an economist at IHS Markit.

A manufactur­ing survey from the Kansas City Federal Reserve showed its composite index slipping to -6 in August, the lowest reading since March 2016, from -1 in July.

Over 55% of survey respondent­s said they expected the most recent US tariffs on Chinese goods to hurt their business, while less than 6% expected a positive impact. More than a third expected trade tensions to persist for one to two years.

While US factories are feeling the pinch from weaker orders overseas and higher input costs due to rising US tariffs on imports, the labor market remains buoyant, providing a support for consumer spending.

Initial claims for state unemployme­nt benefits dropped 12,000 to a seasonally adjusted 209,000 for the week ended Aug 17, the Labor Department said in a separate report. The decline was sharper than expected.

Last week’s claims data falls during the same week the Labor Department conducts surveys used to estimate national employment during the month of August. The four-week average for new unemployme­nt benefits claims was lower than the correspond­ing week in July, a positive signal for employment during the month.

While hiring has cooled, the pace of job gains remains well above the roughly 100,000 needed per month to keep up with growth in the workingage population.

A separate index of leading economic indicators rose in July, pointing to continued economic growth in the coming months. The index, compiled by the Conference Board, had declined in May and June but increased 0.5% last month, boosted by healthy readings for permits to build housing, robust stock prices and low levels of unemployme­nt claims.

Despite these signs of economic In this file photo, a trader works at the New York Stock Exchange in New York. Corporate profits fell for a second straight quarter in the spring as the effect of last year’s tax cut wore off and companies contended with uncertaint­y

from the Trump administra­tion’s trade wars. (AP)

health, investors remain concerned about recession risks. The yield on 2-year Treasury securities dipped below the yield for 10-year securities again on Thursday, a developmen­t widely viewed as a classic recession signal.

Concerns over the impact of the trade tensions between Washington and Beijing on the US economic ex

pansion, the longest on record, prompted the Federal Reserve to cut interest rates last month for the first time since 2008.

At the same time, minutes of last month’s Fed policy meeting released on Wednesday suggested policymake­rs were divided over the cut and did not want to give the appearance that they were planning further rate reductions.

Investors are awaiting guidance on future policy from Fed Chair Jerome Powell who is due to speak at a conference on Friday.

On Thursday, Philadelph­ia Federal Reserve President Patrick Harker said he did not see an immediate need for another interest rate cut. After his comments, US stock prices turned negative.

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