U.S. Data Point to Anemic Economy
The U.S. services sector slowed its pace of growth last month and the number of jobs in the sector fell, reinforcing views of a U.S. economy struggling with a hangover from the boom years and, now, fear of war.
Separately, the Federal Reserve’s “beige book” report of anecdotal evidence Wednesday showed economic conditions around the country “remained subdued” in January and February, primarily because war concerns restrained consumer and business spending and tempered near-term expectations.
The San Francisco office of the Fed found that consumer prices remained stable in the West as the retail sector lagged. New and used vehicle sales eased in January and early February.
Meanwhile, manufacturing remained weak, and agriculture got a boost from rising exports. In real estate, commercial sales remained in a slump but residential sales showed continued strength.
“We are seeing the economy cool off here in February. Concerns about war, bad weather and higher energy prices are dampening economic activity,” said Gary Thayer, economist at A.G. Edwards & Sons in St. Louis.
Businesses, the Fed said, are also facing a profit squeeze because of the inability to charge customers for higher energy costs.
“We have estimated that for every $10 increase in oil prices, overall profits should fall by 7.5% in that quarter,” Lehman Bros. economist Drew Matus said in a research note.
From entertainment to banking, the services sector of the economy expanded for the 13th straight month in February, the Institute for Supply Management said Wednesday. Services account for 80% of the U.S. economy, and although the pace of growth slowed, it was better than expected.
A huge blizzard in mid-February dumped snow on the Northeast and slowed traffic for many services-related businesses. Also taking a bite out of business was a surge in oil prices to 12-year highs, which left consumers with less discretionary income to spend.
Consumer spending has been supported by soaring home prices and four-decade low mortgage rates that have enabled homeowners to refinance their loans and pocket or spend the savings.
The institute’s non-manufacturing index slipped to 53.9 from 54.5 in January, still above the 50.0 barrier that separates growth from contraction. Economists had expected a slightly lower reading of 53.4.
Jobs in the services sector fell in February after a gain the previous month, dimming a ray of hope for the overall economy. The institute’s employment index fell back under the critical 50 level to 49 from 50.3 in January.
With a sharp drop in manufacturing employment in the institute’s influential factory sector survey Monday, analysts said the overall U.S. employment report due Friday might turn out much weaker than expected.
