Factory activity in the U.S. Mid-Atlantic region in July contracted for a third straight month and the number of Americans filing new claims for jobless aid surged last week, heightening worries about the economy’s health.
The economic picture was further darkened by other reports on Thursday showing home resales fell to their lowest level in eight months in June and a gauge of future economic activity fell last month.
“These reports affirm the narrative of slowing economic growth momentum,” said Millan Mulraine, senior macro strategist at TD Securities in New York.
“While we believe that economic conditions have not deteriorated sufficiently to push the Federal Reserve over the edge, the odds of further policy action being taken in the near-term have clearly risen.”
The economy has been hit by fears of deep government spending cuts and higher taxes next year, and troubles from the debt crisis in Europe, culminating in slower job growth, weak consumer spending and manufacturing output.
The Philadelphia Federal Reserve said its business activity index was minus 12.9 from minus 16.6 in June. A reading below zero indicates contraction in the region’s manufacturing.
“There is underlying softness in manufacturing. It probably understates the broader activity throughout the nation, but it still goes to show you that the weak trends are persisting,” said Sean Incremona an economist at 4CAST in New York.
A second report from the Labor Department showed initial claims for state unemployment benefits rebounded 34,000 to a seasonally adjusted 386,000. A seasonal quirk caused claims to drop 24,000 in the prior week.
The four-week moving average for new claims, a better measure of labor market trends, fell 1,500 to 375,500 – staying in the middle of the range it has held for much of 2012.
There was also disappointing news from the housing sector, which has been the bright spot in the economy.
Home resales dropped 5.4 per cent to an annual rate of 4.37 million units last month, the National Association of Realtors said in a third report.
However, the median sales price rose from last year and there were fewer sales of distressed properties.
Initial claims data is volatile in July because of the timing of the annual auto plant shutdowns for retooling.
Automakers have not embarked on wholesale plant shutdowns this year, throwing off the model the department uses to smooth the data for typical seasonal patterns.
An official with the department said it was still experiencing volatility related to the auto layoffs that usually happen at this time of year.
Last week’s claims data covers the period for the July payrolls count. The four-week average of new claims dropped 12,000 between the June and July survey periods, suggesting a marginal improvement in nonfarm payrolls.
The labour market has suffered three months of sub-100,000 job growth as employers put the brakes on hiring.