Prospect of sluggish US recovery reinforced
Date: 07/06/2001
By Brian Hale in New York
Another brace of gloomy economic data has compounded fears that the US economy will not recover dramatically in the second-half of the year, further dimming hopes for the world economy.
Figures released in the US yesterday revealed larger than expected falls in first-quarter non-farm productivity and April factory orders as well as stronger than forecast growth in labour costs and signs that the weakness in manufacturing is spreading to the services economy.
Many experts were not happy with the news. "Recent indicators suggest that the economy could be even weaker right now than we had previously expected; certainly, they have underscored the fact that there continues to be some significant risks that activity will remain very sluggish in the second half of the year," said Mr Peter Hooper, the chief economist at Deutsche Banc Alex. Brown.
But others were more optimistic. At Merrill Lynch, chief global investment strategist Mr David Bowers suggested that "there is a growing sense that the worst of the global slowdown is behind us" although while that may be true in the US, "we do not think that is so in Europe and Japan [and] investors may be surprised at the extent to which the global economy weakens in the second half of the year".
The biggest disparity between expectations and reality came with the productivity figures. The Labor Department downwardly revised its initial estimate for the decline in US non-farm workers' productivity in the first-quarter from 0.1 per cent to a much sharper annual rate of 1.2 per cent, well beyond the 0.8 per cent forecast by most economists and the steepest contraction in eight years.
The Government's revision of its estimate of first-quarter economic growth from 2 per cent down to 1.3 per cent accounted for much of the revision in productivity growth.
The Labor Department said productivity eased in all major sectors of the economy during the quarter; falling by 2.1 per cent for manufacturing companies - the largest fall for more than 11 years - and 2.4 per cent for manufacturers of durable goods.
There also was an upward revision from 5.2 per cent to 6.3 per cent for unit labour cost growth - the fastest pace since the fourth-quarter of 1990.
Further shocks yesterday came from the Commerce Department and the National Association of Purchasing Managers.
Commerce revealed that US factory orders fell 3 per cent in April to a seasonally adjusted $336.94 billion, their first drop since January, the Commerce Department said Tuesday. The consensus expectation was for a fall of about 2.8 per cent.
The department also sharply revised downwards its earlier estimate for March factory orders to a gain of 0.7 per cent, not the 1.4 per cent reported initially.
Factory orders fell across the spectrum last month, led by a 10.3 per cent decline for computers and electronics equipment and a 20.6 per cent plunge in defence capital goods orders of 20.6 per cent. Overall factory orders excluding transportation retreated 1.7 per cent.
The National Association of Purchasing Management, which on Friday reported the 10th successive monthly decline in manufacturing activity for May, yesterday reported that its non-manufacturing index, mainly covering service industries, fell to 46.6 last month from 47.1 in April rather than recovering to a reading of 47.7 as most economists expected.
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