U.S. economy enters another spring swoon

A report released Wednesday showed growth among U.S. manufacturers fell in April and a employment survey indicated that companies added the fewest number of new workers in seven months. This data raised the odds of another soft jobs report on Friday when the government releases the official April employment summary.

By Jeffry Bartash
May 1, 2013, 11:56 a.m. EDT
Market Watch

WASHINGTON (MarketWatch) — Evidence of another spring economic swoon and fewer people being hired continues to pile up.

A pair of reports released Wednesday showed growth among U.S. manufacturers fell in April to the slowest pace since late last year. And a closely followed employment survey indicated that companies added the fewest number of new workers in seven months.

The negative tone of the latest data, along with some disappointing corporate earnings, tugged U.S. stocks SPX -0.56% lower in recent market action. The data also raised the odds of another soft jobs report on Friday, when the government releases the official April employment summary.

“These data suggest that we are going through another spring-summer economic slowdown like we have in the past three years,” said Sam Bullard, an economist at Wells Fargo.

Later Wednesday, the Federal Reserve will offer its take on the economy after the end of the central bank’s regular meeting to set strategy. The softening economy suggests the Fed won’t soon end a massive bond-buying program that’s helping to keep interest rates low.

Employment erosion

What’s certain to worry the Fed is a slowdown in hiring. The central bank’s overarching goal is to drive down the nation’s high unemployment rate, now at 7.6%, to 6.5% or less. So far the progress is slow. While the unemployment rate has been falling, the decline is mostly due to people dropping out of the labor force because jobs are too hard to find.

The latest report by payrolls processor Automatic Data Processing underscores the challenge posed to the Fed nearly four years after the last recession ended. ADP on Wednesday said the private sector added 119,000 jobs in April, down from 131,000 in March and the weakest gain since September. ADP said higher tax rates, which took effect in January, and government-spending cuts took a toll. Read more on the ADP employment report.

The closely followed Institute for Supply Management’s index on U.S. manufacturing, meanwhile, fell to 50.7 in April from 51.3 in March. While any number above 50 signals expansion, the ISM index posted its lowest reading since the end of 2012.

What’s worse, the ISM employment gauge sank 4 percentage points to 50.2%, the lowest level since November. The decline in hiring intentions dovetails with ADP and other reports suggesting that companies are not adding many workers. Read ISM report.

A similar manufacturing index compiled by the private firm Markit also retreated, falling to a six-month low of 52.1 in April from 54.6 in March. It was the biggest decline in almost three years.

Taken together, the two indexes underscore the struggle of manufacturers to expand any faster. A weak global economy, which has sapped U.S. exports, is one major drag. At the same time, decelerating U.S. growth and fresh federal budget cuts have hurt some manufacturers, particularly in industries such as defense.

Most economists don’t expect manufacturing to gain momentum anytime soon. U.S. growth is not expected to accelerate until the second half of 2013 and the global economy is still too soft to give exports a positive jolt.

Even construction spending, which had been strong as the housing market recovers, took a dive in March, slumping 1.7%. That was mostly down to a big drop in government spending, perhaps an indication of the impact of the sequester.

Yet one area of the economy that’s avoided any big bumps is the automobile business. The Big Three car makers — Ford Motor Co. F -1.68% , General Motors Co. GM -0.58% and Chrysler Corp. — on Wednesday all reported strong sales in April.

“Automotive demand remains firm,” an executive from a company that makes fabricated-metal parts told the ISM.

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