Factory Output Slips Again in April

U.S. manufacturing contracted in April for a second month and the number of Americans filing for unemployment benefits held close to a one-year high as the economy struggled to strengthen, reports showed Thursday.

The Institute for Supply Management’s manufacturing index fell to 45.4 from 46.2 in March. Those are the first back-to-back readings below 50, signaling deteriorating business, since an 18-month span ended in January 2002.

The slowdown has hurt the job market, and the Labor Department said first-time jobless claims hit 448,000 last week, exceeding 400,000 for an 11th straight week.

Consumer and business demand aren’t strong enough to increase hiring or production, prompting companies to rely on productivity gains to boost profits.

Productivity rose at a 1.6% annual rate in the first quarter, more than double the pace of the previous three months, the Labor Department said Thursday. The gain, which matched the rise in first-quarter gross domestic product, showed the economy is being fueled solely by productivity increases.

“We’re going to need to get economic growth rising at a pace sufficiently in excess of the rate of growth in productivity in order to get the job market far more viable again,” Federal Reserve Chairman Alan Greenspan told the House Financial Services Committee on Wednesday.

Last week’s jobless claims of 448,000 fell from the prior week’s 461,000, the highest since March 2002. The four-week moving average of claims, a less-volatile indicator, rose to 442,000, the highest since the week ended April 20, 2002, from 440,750.

Today the Labor Department may report that the economy lost 60,000 jobs in April and that unemployment rose to 5.9%, based on a Bloomberg News survey of economists.

Economists had expected a reading of 47.2 in the factory index. The supply managers group surveys more than 400 companies in 20 industries.

The manufacturing report’s new-orders component, which accounts for about a third of the overall index and is considered a leading indicator of future production, fell to 45.2 in April from 46.2 in March. The production index, a gauge of work being performed, rose to 47 from 46.3. The employment index declined to 41.4 from 42.1. An inventories index was 42.7, compared with 42.3, showing that inventories are being depleted at a slower pace.

A drop in energy costs was reflected in the group’s index of prices paid.