A slowdown in factory growth in October reported on Thursday suggested the US economy was cooling from its surprisingly robust third-quarter pace, even as data showed US incomes edged higher in September while underlying consumer prices rose modestly.
The Institute for Supply Management said its index of US manufacturing fell to 50.9 from 52.0 in September, lower than expected and the weakest level since March. With an index reading of 50 separating growth from contraction, the October level put the manufacturing sector perilously close to a slowdown.
Meanwhile, the Commerce Department said on Thursday that personal incomes grew at a 0.4 percent annual rate in September, matching the prior month's gain and outstripping spending, which rose at a 0.3 percent rate.
Core consumer prices, which strip out volatile food and energy costs, rose at a 0.2 percent rate in September, double August's 0.1 percent gain. Over the past 12 months to September, core prices were up 1.8 percent. That matched August's year-over-year rise, which had been the slowest advance in three and a half years.
The year-on-year gain "heads you into the fourth quarter on a good footing, from an inflation perspective," said Pierre Ellis, senior economist at Decision Economics in New York.
The US economy grew at a stronger-than-expected 3.9 percent annual rate in the third quarter, according to Commerce Department data issued on Wednesday, but few expect that trend to continue into the current period.
The Federal Reserve's Open Market Committee, in its statement on Wednesday accompanying its interest rate cut, noted the pace of economic expansion would likely slow in the near term.
EXPORTS SHINE Exports were a bright spot for the manufacturing sector in October as a weak US dollar makes American goods more affordable elsewhere. ISM said exports jumped to 57.0 from 54.5, while imports dropped to 47.5 from 53.0 a month earlier.
JOBLESS CLAIMS FALL In a separate report, US workers filing first-time claims for unemployment insurance fell by 6,000 in the week to October 27, but the four-week moving average edged up to a six-month high.
"Right now, it doesn't look like the economy is falling apart. It's growing, but slowly," said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
After cutting interest rates by a quarter percentage point on Wednesday, Fed officials said inflation risks were now about equal with downside risks to economic growth. They said, however, they continue to watch closely for price pressures, especially with the dollar near record lows and oil prices well above $90 a barrel.
Headline consumer prices, which include energy and food, also rose at a 0.2 percent rate in September after holding steady in August, the Commerce Department said.
The Fed's rate cut this week was the second in as many months. The central bank slashed borrowing costs by half a percentage point in September to shield the economy from the effects of a housing slump and credit crisis sparked by losses on risky mortgage debt.
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