Sunday, March 2, 2008

Hiring May Have Cooled, Factories Slowed: U.S. Economy Preview

By Shobhana Chandra

March 2 (Bloomberg) -- The unemployment rate in the U.S. probably rose in February as hiring slowed, and manufacturing may have contracted for the second time in three months, economists said before reports this week.

The jobless rate rose to 5 percent from 4.9 percent, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's March 7 report. Payrolls probably expanded by 25,000, short of the roughly 100,000 needed to keep pace with increases in the labor force.

Fewer jobs, rising fuel costs and falling property values are causing consumers to lose confidence and limit spending. The slump in demand is prompting factories to cut production, pushing the economy closer to a recession and making it more likely the Federal Reserve will cut interest rates further.

``Hiring will slow in coming months,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The parts of the economy that are doing well aren't enough to offset the parts that are doing badly.''

The projected increase in payrolls last month would follow a decline of 17,000 jobs in January, the first decrease in more than four years. The pace of hiring over the past two months would be the worst start for any year since 2003.

Factory payrolls shrank by 25,000 workers, reflecting automakers' efforts to trim costs, economists project the jobs report may show.

`Potential Drag'

``Slowing job creation is yet another potential drag on household spending,'' Fed Chairman Ben S. Bernanke said in semiannual testimony before lawmakers last week. Other risks to the economy include the possibility that housing may deteriorate more than anticipated and that credit conditions may tighten substantially, he said.

Fed funds futures contracts show 72 percent odds the Fed will lower borrowing costs by three-quarters of a point to 2.25 percent by its March 18 meeting. A week ago, the odds were 2 percent. The odds are better than even that the rate will be cut to 2 percent by April 30.

Financial firms are scaling back employment as losses on subprime mortgage-linked products mount. Morgan Stanley, the second-biggest U.S. securities firm, said on Feb. 13 it will cut 1,000 jobs by shrinking its home-mortgage business in America and closing a U.K. unit.

The moves ensure the New York-based company is ``appropriately positioned for the environment going forward,'' Anthony Meola, chief operating officer of Morgan Stanley's U.S. residential business, said in a statement.

Factories Contract

Manufacturers are pulling back as demand weakens, the Institute for Supply Management may report tomorrow. The Tempe, Arizona-based group's factory index fell to 48 in February from 50.7 the prior month, according to the survey median. A reading of 50 is the dividing line between expansion and contraction.

The worst housing slump in a quarter century is filtering through to services, which reflect almost 90 percent of the economy. The median forecast in the Bloomberg survey shows service industries shrank in February for a second month, a slide not seen since the last recession. The Supply Management group's report is due March 5.

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
ISM Manu Index 3/3 Feb. 50.7 48.0
Productivity QOQ% 3/5 4Q 1.8% 1.8%
Labor Costs QOQ% 3/5 4Q F 2.1% 2.1%
Factory Orders MOM% 3/5 Jan. 2.3% -2.5%
ISM NonManu Index 3/5 Feb. 44.6 47.5
Initial Claims ,000's 3/6 2-Mar 373 363
Cont. Claims ,000's 3/6 Feb. 24 2807 2820
Pending Homes MOM% 3/6 Jan. -1.5% -1.0%
Nonfarm Payrolls ,000's 3/7 Feb. -17 25
Unemploy Rate % 3/7 Feb. 4.9% 5.0%
Manu Payrolls ,000's 3/7 Feb. -28 -25
Hourly Earnings MOM% 3/7 Feb. 0.2% 0.3%
Hourly Earnings YOY% 3/7 Feb. 3.7% 3.6%
Avg Weekly Hours 3/7 Feb. 33.7 33.7
Cons. Credit $ Blns 3/7 Jan. 4.5 7.0

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