Daily Management Review

Moderate Economic Growth Pointed Out By U.S. Services And Factory Data


06/06/2017




Moderate Economic Growth Pointed Out By U.S. Services And Factory Data
Despite a deceleration in job growth last month, a sustained labor market strength was pointed out by a jump in employment in the U.S. to a near two-year high even as U.S. services sector activity slowed in May as new orders tumbled.

Limited scope for faster economic growth was suggested by the data which showed worker productivity unchanged in the first quarter and orders for manufactured goods falling in April for the first time in five months along with the moderation in services industries production.
 
"The economy is neither accelerating nor slowing, but the labor market is looking up," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
 
Its non-manufacturing activity index fell six-tenths of a percentage point to a reading of 56.9, said the Institute for Supply Management (ISM). The sector, which accounts for more than two-thirds of U.S. economic activity, is said to be in expansion when there is a reading above 50.
 
Last month, in terms of new order, services industries reported a 5.5 percentage points dive. After increasing for 13 straight months, there was a decrease in the prices paid by non-manufacturing industries for materials and services.
 
Even as nonfarm payrolls increased 138,000 in May after rising 174,000 in April, labor market strength was suggested by the surging of a measure of services sector employment by 6.4 percentage points to its highest level since July 2015.
  
Attention from some Federal Reserve officials when they meet on June 13-14 to deliberate on monetary policy would be attracted by the drop in prices paid by services industries.
 
At that meeting after a similar increase in March, it is expected that the U.S. central bank will raise its benchmark overnight interest rate by 25 basis points.
 
"Most inflation comes from services rather than goods sitting on store shelves, so if services prices are in decline, the Fed has little hope of achieving its 2 percent inflation objective," said Chris Rupkey, chief economist at MFUG in New York.
 
"We will see if this alters their gradual pace of rate hikes later on this year when they provide their latest interest rate forecasts at the upcoming meeting."
 
While the dollar rose against a basket of currencies, U.S. stocks were trading lower.
 
After jumping 1.0 percent in March, the Commerce Department, in a separate report, said factory goods orders dropped 0.2 percent in April. Orders rose 4.4 percent from a year ago.
 
A recovery in the energy sector that has led to demand for oil and gas drilling equipment is supporting the manufacturing sector, which accounts for about 12 percent of the U.S. economy.
 
"The slow growth narrative for the manufacturing sector and business spending outlook remains intact," said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
 
In the last quarter, nonfarm productivity, which measures hourly output per worker, was unchanged, according to a third report from the Labor Department. At a 0.6 percent annualized pace, it was previously reported to have declined.
 
(Source:www.reuters.com) 






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