Survey reinforces US manufacturing gloom

An index of regional factory activity slumped to its lowest level in seven years this month, painting a grim outlook for the US manufacturing sector as domestic economic demand continued to slow.

The Philadelphia Federal Reserve index of manufacturing conditions fell to -24.9 from -17.4 in April, marking a fifth consecutive monthly decline.

Economists had forecast a slight uptick to a reading of -15 after a dramatic improvement in the New York Fed’s Empire State manufacturing index earlier this week.

An index of new orders in the Philadelphia region decreased from -9.3 to -18.8 while the employment index retreated from -4.7 to -11.1, a third negative reading in four months. However, the prices paid index moderated a fraction, declining to 51.6 from 54.4.

The downbeat report was partially offset by an increase in the Conference Board’s index of leading economic indicators, which rose 0.1 per cent in March, the first positive reading since September, in line with economists’ forecasts.

Half of the ten economic indicators covered in the report showed an improvement, led by a increase in the money supply after the Federal Reserve’s efforts to improve liquidity in the banking system.

The coincident index, a measure of current economic activity, also increased a fraction, following a decline last month.

In spite of the modest improvement the Conference Board said its indices suggested “economic weakness is likely to continue in the near term.”

Ian Shepherdson, chief US economist at High Frequency Economics said: “The modest rise in the March headline index is nothing more than a blip after a run of five straight declines; there will be further falls in the months ahead.”

Weekly jobless claims rose 17,000 to 372,000 in the latest week, slightly fewer than the consensus forecast of 375,000. The four-week moving average slipped by 750 to a revised 376,000.

However, the number of workers remaining on unemployment benefits rose to 2.98m, the highest since June 2004.

Economists said the current level of jobless claims was probably a more accurate reading of the labour market than in the previous two weeks when the data were particularly volatile, possibly because of the timing of the Easter holiday.

“We judge these data to be consistent with continued weakness in the labour market in April and with recessionary conditions in the overall US economy,” John Ryding, chief US economist at Bear Stearns said.