US manufacturing activity cools; job market remains strong

WASHINGTON: US factory activity slowed in January amid a fall in new orders, but an unexpected drop in the number of Americans filing for unemployment benefits last week pointed to sustained labour market strength that should underpin domestic demand.
The economy’s healthy fundamentals were also underscored by other data on Thursday showing a solid increase in construction spending in December. A decline in worker productivity in the fourth quarter, however, suggested it may be hard to maintain the strong pace of economic growth.
The Federal Reserve on Wednesday described the labour market as having “continued to strengthen,” and economic activity as “rising at a solid rate.” The US central bank left its benchmark overnight interest rate unchanged. US financial markets are expecting a rate hike in March.
The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 59.1 last month from 59.3 in December. A reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12 per cent of the US economy.
The survey’s production and employment sub-indexes fell in January as did a gauge of new orders. The moderation in orders is likely to be temporary against the backdrop of strong domestic and global demand. Manufacturers reported an increase in export orders and most offered an upbeat assessment of business conditions.
Manufacturers of computer and electronic products said “budgets are being approved for new projects.” Furniture manufacturers reported that “our usual winter slowdown has not occurred, and we are very busy with new orders.”
Domestic demand increased at its fastest pace in more than three years in the fourth quarter. A weak dollar, which lost 7 per cent of its value against the currencies of the United States’ main trading partners last year, is making US-made goods more competitive on the international market.
The ISM survey also showed signs of a pickup in inflation, with a measure of prices paid by factories for raw materials increasing to its highest level since May 2011.
In a separate report, the Labor Department said initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 230,000 for the week ended January 27. Economists polled by Reuters had forecast claims rising to 238,000 in the latest week.
Last week marked the 152nd straight week that claims remained below the 300,000 threshold, which is associated with a strong labour market. That is the longest such stretch since 1970, when the labour market was much smaller. — Reuters