October 7, 2009

U.S. non-residential construction declines amid weak growth

WASHINGTON, D.C.

The U.S. economy is having growing pains. Discouraging new reports on unemployment and manufacturing have reinforced worries that job losses and meagre factory output will make for a weak recovery as the nation climbs out of the worst recession in decades.

“The economy is not moving quickly from recession to expansion. It is moving in a very halting way,” said Mark Zandi, chief economist at Moody’s Economy.com. “Given the severity of the downturn, we are not going to come roaring back.”

First-time jobless claims rose more than expected last week to a seasonally adjusted 551,000, the U.S. Labour Department said. Economists viewed it as a sign that employers remain reluctant to hire.

Economists think the economy lost 180,000 more jobs in September. The unemployment rate is expected to climb from 9.7 per cent to 9.8 when the government releases its monthly jobs report Oct. 2

And factories are struggling to mount a rebound. A gauge of manufacturing activity came in at 52.6 for September, the Institute for Supply Management said — enough to signal growth for the second straight month but still down from August.

The gloom on Wall Street to start the fourth quarter came despite encouraging signals on consumer spending and construction.

Construction spending rose 0.8 per cent in August, including the biggest increase in housing activity in nearly 16 years. But spending for office buildings, hotels, shopping centres and government projects all declined.

Consumer spending rose a bigger-than-expected 1.3 per cent in August, the best gain since October 2001, when the country was recovering from the Sept. 11 terrorist attacks. But about a third of that increase came from the government’s Cash for Clunkers program.

Once the trade-in program ended, car sales fell back. General Motors and Chrysler said Thursday that their sales fell more than 40 per cent in September. Ford reported a 5.1 per cent drop.

The August spending report showed personal incomes continue to lag: They edged up 0.2 per cent, helped by an increase in the minimum wage that took effect in July.

Economists fear weak income growth means that the jump in consumer spending won’t last. Consumer spending is vital for a sustained recovery because it accounts for about 70 per cent of all economic activity.

The jump in spending and the much smaller gain in income sent the personal savings rate down to three per cent in August, from four per cent in July.

Many economists believe the economy is growing again after the longest recession since the Second World War — perhaps at a rate of three per cent or more in the just-ended third quarter.

But David Wyss, chief economist for Standard&Poor’s in New York, said he expects growth to slip to an anaemic 0.8 per cent in the final three months of this year, and perform only a little better next year.

-Associated Press

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