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Tuesday 17 August 2010

U.S. Economy: Factories Lose Orders, Builders Lose Confidence

By Courtney Schlisserman and Timothy R. Homan

Orders and sales at New York manufacturers decreased in August for the first time in more than a year and U.S. homebuilders turned more pessimistic, indicating the economic slowdown is becoming broad-based.

The Federal Reserve Bank of New York’s so-called Empire State factory index today showed bookings dropped for the first time since June 2009, while sales fell at the fastest pace since March 2009. The National Association of Home Builders/Wells Fargo confidence index unexpectedly declined to a 17-month low.

Slower consumer spending and less inventory rebuilding may restrain manufacturing after the industry led the economy out of the worst recession in seven decades. Treasury securities climbed on growing concern the global expansion will cool in the second half of the year more than central bankers estimated.

The reports are showing “a truly weak recovery,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “There’s no sustained driver. Sentiment is pretty weak in both of these rather large segments of the economy.”

The yield on the benchmark 10-year Treasury note dropped to 2.57 percent at 4:24 p.m. in New York from 2.67 percent late on Aug. 13. The Standard & Poor’s 500 Index was little changed at 1,079.38 at the 4 p.m. close in New York.

Less Than Forecast

The New York Fed’s general economic index, which is a separate question not tied to orders or sales, rose to 7.1 this month from 5.1 in July. Economists forecast the measure would rise to 8, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the area covering New York, northern New Jersey and southern Connecticut.

Estimates of the 48 economists surveyed by Bloomberg ranged from zero to 12.3. Manufacturers account for about 6 percent of New York’s economy.

The factory orders gauge decreased to minus 2.7 this month from 10.1 in July. A measure of shipments fell to minus 11.5 from 6.3.

The manufacturing executives’ outlook index retreated to the lowest level since July 2009. Growing concern about the future may prompt companies to rein in hiring, depressing one of the bright spots in employment.

Factories nationally have added 183,000 workers to payrolls since the start of the year, according to Labor Department data. In July, they boosted payrolls by 36,000, while the factory workweek increased to 41.1 hours from 41 hours a month earlier.

Economies in Disequilibrium

ITT Corp., a maker of night-vision goggles, last month reported revenue for the second quarter that was below the analyst estimates in a Bloomberg survey.

“This global economy is not in a steady state of equilibrium now,” ITT Chief Executive Officer Steven Loranger said on a conference call July 30. “We’ve seen a lot of short cycle volatility throughout our segments and throughout our geographies.”

Homebuilders are also more concerned. The National Association of Home Builders/Wells Fargo sentiment index dropped to 13 this month, the lowest level since March 2009, from 14 in July, data from the Washington-based group showed today. Economists forecast a reading of 15, according to the median estimate in a Bloomberg News survey. Readings lower than 50 mean more respondents said conditions were poor.

Demand has slumped since a government homebuyers tax incentive expired in April. With mounting foreclosures adding to inventory and unemployment forecast to end the year at 9.5 percent, a housing recovery will take time to develop.

Many ‘Challenges’

“The housing market still has many fundamental challenges that are likely to keep it depressed,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The problem continues to be oversupply. There are just far too many homes.”

The builders group’s indexes of current single-family home sales and expectations for purchases over the next six months decreased.

“Builders are expressing the same concerns that they are hearing from consumers right now, particularly the sense that the overall economy and job market aren’t gaining any traction,” NAHB Chairman Bob Jones, a homebuilder from Bloomfield Hills, Michigan, said today in a statement.

To be eligible for government’s tax incentive program, worth as much as $8,000, buyers had to sign contracts by the end of April and close on homes by June 30. The deadline for closings was extended until the end of September.

Global Asset Demand

Another report showed concern over slowing growth worldwide propelled global demand for long-term U.S. financial assets in June as investors abroad bought Treasuries and agency debt and sold stocks. Net buying of long-term equities, notes and bonds totaled $44.4 billion for the month, compared with net purchases of $35.3 billion in May, the Treasury Department reported.

Fed policy makers last week voted to keep the benchmark interest rate at a record low and said the recovery was likely to be “more modest” than earlier anticipated. The central bank decided to keep its bond holdings steady, taking an additional step to spur growth for the first time in more than a year.

The results of the Fed’s quarterly loan-officer survey, also issued today, showed banks eased credit standards and terms on loans in the second quarter, even as demand for business and consumer credit was little changed at the majority of lenders. It was the first survey since late 2006 that showed a loosening of guidelines on loans to small companies.

To contact the reporters on this story: Courtney Schlisserman in Washington

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