Data showing a double-dip in home prices, pessimistic consumers and a slowdown in regional manufacturing raised concerns on Tuesday that the US economy's soft patch could become protracted. "The question is, 'Is the softer data we're seeing transitory, or is it likely to persist throughout the remainder of 2011?' Right now, that's an open question that investors are trying to figure out," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The US economy grew at a tepid 1.8 percent annual rate in the first three months of the year, and these fresh signs suggest the recovery is still struggling to gain momentum. A drop in a barometer of business activity in the US Midwest added to other regional reports that have pointed to slower growth in manufacturing this month amid supply chain disruptions from the major earthquake in Japan in March.
The Institute for Supply Management-Chicago business barometer dropped to 56.6 in May from 67.6 in April, its lowest reading since November 2009 and missing forecasts for a reading of 62.6. The index of new orders sank to 53.5 from 66.3, while the employment component fell to 60.8 from 63.7.
The consumer also appears to be struggling with data last week showing consumer spending was crimped by high gasoline prices in April. Tuesday's manufacturing data bodes poorly for a national factory report due on Wednesday, and casts a cloud ahead of a report on national employment on Friday. "While weakness in manufacturing may simply reflect auto parts shortages, this is the fifth regional manufacturing index to fall sharply in May," wrote Chris Low, chief economist at FTN Financial.
US single-family home prices dropped in March to fall below the low hit in April 2009 during the financial crisis, a closely watched survey showed. The S&P/Case-Shiller composite index of 20 metropolitan areas declined 0.2 percent from February on a seasonally adjusted basis, in line with economists' expectations.
The index fell to 138.16, below the 2009 low of 139.26. A glut of houses for sale along with foreclosures, tight credit and weak demand have kept the housing market on the ropes even as other areas of the economy start to recover. Home prices had been supported last spring by a tax credit, but the housing market has struggled since the credit expired. Prices in the 20 cities fell 3.6 percent year over year, worse than expectations for a decline of 3.3 percent. "The declines sustained in the last 12 months have almost erased the gains of the previous 12 months," said Cary Leahey, economist and managing director at Decision Economics in New York. "The housing market is treading backward but not drowning."
Separately, the Conference Board, an industry group, said its index of consumer attitudes fell to 60.8 in May from a revised 66.0 in April, well below a median forecast of 66.5. Consumers took a more negative view of business and labour market conditions, while inflation expectations jumped after easing in April. Economists expect Wednesday's larger ISM manufacturing survey to ease to 57.7 in May from 60.4 the month before. Friday's US payrolls data is forecast to show the economy added 180,000 jobs in May, easing from 244,000 in April.