U.S. Economy Shows Signs of Slowdown

A slowdown in the U.S. economy is no longer in doubt.

Consumer spending in October showed the smallest gain in six months, Midwestern manufacturing slumped in November and the number of claims for jobless benefits soared, government and private industry statistics showed Thursday.

“Consumers may be running for cover, and companies are cutting loose workers,” said Ken Mayland, president of ClearView Economics.

Claims for unemployment benefits unexpectedly rose to the highest level in almost 2 1/2 years, government figures showed Thursday.

Jobless claims in the latest week were 358,000, the highest since July 1998, versus 339,000 in the previous week, the Labor Department said. Economists noted that the rise does not necessarily signal an imminent recession but is consistent with much slower growth.

“If it went to 400,000, we’ve got a serious deterioration,” James Glassman, senior economist at Chase Securities, told Reuters. “If it goes to 375,000 it’s starting to be in no-man’s land between a ‘hard’ and ‘soft’ landing,” he added, distinguishing between a recession and a slowdown.

Americans’ spending on goods and services rose 0.2% in October after an increase of 0.9% a month earlier, the Commerce Department reported. Adjusting for inflation, sales were flat. A 2.3% decline in purchases of durable goods, such as automobiles, slowed the pace of spending.

Incomes fell 0.2% in October after a 1.1% increase the month before, when agricultural subsidies caused a surge, the Commerce Department report said.

Manufacturing in the Chicago area contracted in November for the third time in four months, the National Assn. of Purchasing Management-Chicago reported in its monthly survey. The group’s index measuring new orders fell to its lowest level in 18 years and the employment index dropped to a 10-year low.

Still, analysts questioned whether the latest economic statistics meant consumers were in full retreat. November sales at Wal-Mart Stores Inc. and other retailers rose within expectations as merchants cut prices to lure shoppers, industry reports showed.

Chicago manufacturing is heavily influenced by the automobile industry and “does not necessarily mean a similar slowing” nationwide, said Suzanne Rizzo, an economist at Maria Fiorini Ramirez Inc. in New York. Still, Rizzo said, “these data do seem to offer evidence of a ‘crack’ in the surface of an otherwise indomitable economy.”

If there’s a broader slump in manufacturing, it should show in the nationwide factory report of the National Assn. of Purchasing Management, to be released today.

The NAPM-Chicago factory index fell to 41.7 in November from 48.7 in October. Readings below 50 mean more companies reported a decline in business than showed an improvement.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

October: $8.41 trillion

Source: Commerce Department

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Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

October: $6.88 trillion

Source: Commerce Department