Weak data on US home sales and factory activity on Thursday showed the economy stuck in a slow-growth gear, although a drop in claims for jobless aid offered hope the labour market's recovery was on track. The reports suggested growth was being hampered by a combination of bad weather at home and supply disruptions caused by the March earthquake in Japan, and analysts said the economy should regain momentum by the second half of the year.
-- Initial claims fall 29,000 last week
-- Mid-Atlantic factory activity brakes sharply
-- Existing home sales fall 0.8pc
First-time claims for state unemployment benefits fell 29,000 to 409,000 last week, the Labour Department said. The bigger-than-expected drop eased fears that a large increase last month reflected a fundamental deterioration in the jobs market, buttressing the view that the run up was due to auto plant shutdowns and other one-time factors. In a separate report, the Philadelphia Federal Reserve Bank said its business activity index - a gauge of factory activity in the Mid-Atlantic region - slumped to a seven-month low.
The flow of orders and shipments slowed significantly, while unfilled orders and inventories dropped. Employers, however, added workers. Economists said this suggested that much of the slowdown in factory activity in the region last month refelected supply chain disruptions at motor vehicle assembly plants, which should prove to be temporary.
A Fed report on Tuesday showed US motor vehicle output dropped 8.9 percent in April, causing manufacturing activity to contract for the first time in 10 months. Estimates for second-quarter economic growth are currently ranging between a 3 percent and 3.5 percent annual pace, but some analysts have started trimming forecasts as the impact of the supply chain disruptions becomes more evident.
The economy grew at a 1.8 percent rate in the first three months of this year, after a 3.1 percent clip in the fourth quarter. Although some of the factors hindering growth may prove temporary, housing will remain a headache. Sales of previously owned homes fell 0.8 percent last month to an annual rate of 5.05 million units, the National Association of Realtors said. Housing is buckling under the weight of foreclosed properties, which are depressing prices.
The data suggested the Federal Reserve will be in no hurry to shift from its ultra easy monetary policy stance. While the initial claims decline was more than economists' expectations for a fall to 420,000, they remained anchored above the 400,000 level that is normally associated with stable job growth for a sixth straight week.
The claims data covered the survey period for the government's closely watched employment report for May, which will be released early next month. Claims rose 5,000 between the April and May survey periods, indicating a loss of momentum in the pace of labor market improvement.
"Based on this and other incoming data, we look for a gain of 190,000 in May nonfarm payrolls and a 210,000 increase in private payrolls," said Michael Gapen, a senior US economist at Barclays Capital in New York. Employers added 244,000 jobs in April, the most in 11 months. However, the unemployment rate rose to 9 percent from 8.8 percent in March.
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