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Sandy rebuilding boosts manufacturing output

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By Reuters

Published: Wednesday, Nov. 21, 2012, 6:04 p.m.

WASHINGTON — Manufacturing grew in November at its quickest pace in five months, with a rise in domestic demand hinting that factories could provide a boost to economic growth in the fourth quarter.

Other data on Wednesday showed a drop in new claims for jobless benefits, although they remained elevated because of superstorm Sandy, and only a marginal improvement in consumer sentiment.

Financial information firm Markit said its “flash,” or preliminary, manufacturing Purchasing Managers Index rose to 52.4 from a three-year low of 51.0 in October. A reading above 50 indicates growth in the factory sector.

Still, economists cautioned against taking the reading at face value, as other gauges of manufacturing have looked softer, including readings for new orders and regional business sentiment surveys.

“We're still not exactly going gangbusters,” said Sarah Watt, an analyst at Wells Fargo in Charlotte. “The data point to modest growth.”

Economists expect growth will slow in the fourth quarter to a lackluster 1.6 percent annual rate from a 2.0 percent rate in the prior three months, according to a Reuters poll conducted on Nov. 15.

Some respondents in Markit's survey said efforts to rebuild after Sandy might have accounted for some of the increased demand.

The storm continues to make it more difficult to read the underlying health of the economy. Jobless claims surged after the deadly storm hit the East Coast on Oct. 29, but last week retraced about half of that rise. Factory output and retail sales contracted last month, largely as a result of the storm.

Most of these effects are expected to be temporary, but even taking that into account, the economy appears to be stuck in low gear. Europe's debt crisis is weighing on the global economy and U.S. businesses appear hesitant to increase hiring and investment with the government on course to slash the country's budget deficit next year.

“Stripping out the short-term boost from Sandy ... and (factory) output is probably flat,” said Paul Dales, an economist with Capital Economics in London. “That's unlikely to change much when the global economy is set to remain weak.”

The Labor Department said initial claims for state unemployment benefits dropped 41,000 to a seasonally adjusted 410,000. Sandy had driven first-time filings up by 90,000 in the prior week.

Economists said that while the still-high level of claims reflected the storm's impact, it also likely pointed to more fundamental problems in the jobs market.

“There appears to be a noticeable deceleration of growth in the fourth quarter,” said Peter Hooper, an economist at Deutsche Bank in New York. “It would not be surprising if some of the new jobless claims are due to underlying weakness,” he said.

Financial markets showed little reaction to the data as investors focused on developments in Europe and trading slowed ahead of the Thanksgiving holiday on Thursday. U.S. stocks rose, while Treasury debt prices were down modestly.

The claims report covered the same week when the Labor Department collects data for its estimate on hiring in November. It suggested that report, due on Dec. 7, could prove soft, although not all analysts expect a significant storm impact. Nonfarm payrolls grew 171,000 in October.

 

 
 


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