Optimism Fades for U.S. Economic Boost By Year-End
September 15 2016 - 4:10PM
Dow Jones News
Cautious consumers, retrenching manufacturers and scant signs of
inflation are diminishing optimism about a breakout in economic
growth in the final stretch of the year.
Retail sales declined last month for the first time since March
and manufacturing production slipped, government data released
Thursday showed. Meanwhile, prices businesses receive for their
goods and services were unchanged last month, a sign of still-soft
demand at home and abroad. Companies also remain cautious about
building up too much inventory, new figures showed.
Recent economic gauges, including evidence of a slowdown in
August hiring, suggest the economy could be constrained for the
rest of the year to a growth rate only slightly above the
expansion's overall 2% pace—the weakest of any since World War
II.
Forecasters long expected an acceleration in the economy
starting in the summer after nine months of economic growth around
a 1% rate. The uptick was expected to deliver firmer wage growth
and price gains, and put Federal Reserve policy makers in a
position to lift the central bank's benchmark interest rate by this
month.
"Consumer spending growth is steady, but not spectacular," said
HSBC Securities economist Ryan Wang. When combined with
manufacturing weakness and slower labor-market improvement, overall
economic growth in 2016 "will come in a little lower than the
average over the past five years."
HSBC forecasts the economy to grow at a 2.5% rate in the second
half of the year, and 1.8% for the full year. Barclays economists
on Thursday lowered their third-quarter forecast for growth by 0.2
percentage point to a 2.6% pace. Macroeconomic Advisers reduced its
third-quarter projection to a 3.2% gain from 3.4%.
With few signs of stronger momentum for consumer spending,
manufacturing output or hiring emerging in recent data, and
still-soft inflation, Mr. Wang and many other economists expect the
Fed to hold rates steady at next week's policy meeting.
It is a familiar story for the U.S. economy since the recession
ended in mid-2009. Signs of gathering strength often have failed to
yield a sustained acceleration in the expansion. Some firms now see
consumers growing more cautious ahead of November's election.
"We were growing like crazy," said Jason Hornung, who operates
Hornung's Ace Hardware in Linglestown, Pa. "This year, not so much.
It's been stagnant. That seems to happen around an election
year."
Customers have pared spending on bigger-ticket items such as
riding lawn mowers and high-end chain saws, he said. Those
purchases can typically be postponed if consumers are uncertain
about the future.
Nationally, retail sales declined a seasonally adjusted 0.3% in
August from July, the Commerce Department said. Spending at auto
dealerships and department stores fell last month. So did sales in
the category that includes online purchases with Amazon.com Inc.
and its competitors, a bright spot for spending this year.
Consumer spending had helped offset weak manufacturing output
early in 2016. A stronger dollar slowed exports and a retrenching
energy industry hurt business investment. With energy prices and
the dollar mostly stabilizing of late, the drag was expected to
ease. But in August, manufacturing output fell 0.4%, and is down by
the same amount from a year earlier, according to Fed data released
Thursday. The latest drop was led by lower output of consumer
goods.
"We have not seen much change in the general economy in North
America," Dave Farr, chief executive of Emerson Electric Co., told
investors Wednesday. "On the consumer side of our businesses we've
seen growth, but even the consumers are being cautious…On the
industrial side, companies continue to cut."
The producer-price index for final demand, measuring changes in
the prices that U.S. companies receive for their goods and
services, was unchanged in August, both from July and a year
earlier, the Labor Department said Thursday.
The Fed's preferred inflation gauge, the Commerce Department's
price index for personal-consumption expenditures, has undershot
the central bank's 2% annual target for more than four years.
And a separate Commerce Department report showed inventories at
U.S. businesses were unchanged in July, an indication firms don't
expect more robust demand in the near future. The paring back of
private inventories has been a major drag on overall GDP growth for
the past five quarters.
"The U.S. consumer remains particularly fragile," Clorox Co.
Chief Financial Officer Steve Robb told investors last week. "I
don't think it's any different than a year ago but it means the
consumer's fragile and the U.S. economy remains sluggish."
Jeffrey Sparshott contributed to this article.
Write to Eric Morath at eric.morath@wsj.com
(END) Dow Jones Newswires
September 15, 2016 15:55 ET (19:55 GMT)
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