|
 The economy's struggle to pick up steam after a dismal first quarter
was underscored by other data on Friday showing a drop in consumer
confidence to a seven-month low in early May and only a mild rebound
in factory activity in New York state.
Coming on the heels of weak retail sales and producer inflation data
this week, the reports suggest the Federal Reserve will probably not
raise interest rates anytime soon.
"It means in the next month or so we are unlikely to see a massive
rebound in growth momentum. These are not the numbers that would
inspire confidence in the Fed to tighten policy," said Millan
Mulraine, deputy chief economist at TD Securities in New York.
Industrial output slipped 0.3 percent after a similar decline in
March, the Fed said. Economists had expected a 0.1 percent gain.
A plunge of 14.5 percent in oil and gas well drilling pushed mining
production down 0.8 percent last month. It was the fourth straight
monthly decline in mining output.
Crude oil prices have fallen by about 50 percent since last June,
resulting in a sharp drop in well drilling activity.
Companies like Schlumberger <SLB.N>, the world's No. 1 oilfield
services provider, and Halliburton <HAL.N> have slashed their
capital spending budgets for this year. Caterpillar Inc <CAT.N> has
cut its 2015 profit outlook and warned that lower oil prices would
hurt its energy equipment business.
Oil and gas drilling is down 46.5 percent over the year and there is
no relief in sight despite the recent stabilization of crude oil
prices. Oil rig counts continued to decline early in the second
quarter.
"We see a further drop in mining investment over the next few
quarters and are not convinced that business investment ex-mining
will be strong enough to sufficiently offset this drag," said
Michelle Meyer, a senior economist at Bank of America Merrill Lynch
in New York.
SENTIMENT SOURS
In a separate report, the University of Michigan said its consumer
sentiment index fell to 88.6 early this month, the lowest reading
since October, from 95.9 in April.
There were slight declines in consumers' attitudes toward purchases
of motor vehicles and homes.
While economists noted the weak relationship between consumer
confidence and consumer spending, they nevertheless saw May's
decline as unfavorable. Many of them believe that consumer spending
will accelerate in the second quarter as households start drawing on
their savings from relatively cheap gasoline prices.
[to top of second column] |
"All things considered, the decline in confidence means that the
potential for a pick-up in consumption growth over the next few
months is probably smaller than we previously anticipated," said
Paul Ashworth, chief economist at Capital Economics in Toronto.
The economy was slammed earlier in the year by bad weather, port
disruptions, a strong dollar and deep spending cuts by energy firms.
The government reported last month that GDP expanded at a 0.2
percent annual pace in the first quarter.
But trade and inventory data published after the GDP snapshot
suggested the economy actually contracted. Second-quarter growth
estimates are currently hovering around a 2.5 percent pace, well
below the 4.6 percent pace in the same period last year.
U.S. stocks were marginally weaker, while prices for longer-dated
U.S. government bonds rose. The dollar slipped against a basket of
currencies.
Last month, utilities production tumbled 1.3 percent, also
contributing to the weakness in industrial output. Manufacturing
production was unchanged after gaining 0.3 percent in March. It
was restrained by a 0.9 percent drop in machinery, though motor
vehicle production rose.
Manufacturing, which accounts for about 12 percent of the economy,
has been dampened by the dollar. Even as the greenback rally fades,
factory activity is unlikely to rebound strongly.
In a separate report, the New York Fed said its Empire State general
business conditions index rose to 3.09 in May from -1.19 in April. A
reading above zero indicates expansion.
While new orders rebounded this month, order books remained
depressed and inventories swelled. Labor market indicators also
weakened a bit.
"They suggest any pick-up in manufacturing activity will be muted,
at best," said Jesse Hurwitz, an economist at Barclays in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
