U.S. economic growth is close to stalling, analysts said yesterday after the release of the latest weak economic reports, with many predicting that the Federal Reserve will cut short-term interest rates next week to give the economy a boost.
The Labor Department said the nation's unemployment rate ticked up to 5.7 percent last month while the total number of payroll jobs fell by 5,000 after a drop of 13,000 in September. The total number of hours worked also fell, and the number of people looking for work but unable to find it rose by more than 100,000, to 8.2 million.
Meanwhile, manufacturing continues to weaken. The Institute for Supply Management reported that its index tracking conditions in that sector fell last month to 48.5 -- the lowest level this year -- from 49.5 in September. Both readings were below 50, indicating that manufacturing activity was declining.
And consumer spending, the key propellant of economic growth over the past year, fell 0.6 percent in September, after adjustment for inflation, despite a 0.4 percent rise in personal income, the Commerce Department said yesterday. Most of the spending decline was because of a sharp drop in automobile purchases
The new figures added to the gloom caused by recent reports that consumer confidence has plunged to its lowest level in nine years, and that new orders for durable goods fell significantly in September.
"In the past two weeks a flurry of indicators suggest the economy weakened sharply in September and October," economist Joseph T. Abate of Lehman Brothers in New York told his firm's clients. "With momentum flagging, the rapid erosion in confidence and the pickup in uncertainty are likely to severely restrain consumer and investment spending over the next three to six months."
Abate wrote that the fall in vehicle purchases in September and October indicates "the consumer response to incentives appears to have gotten weaker with each re-introduction of interest free financing. Likewise, a sharp pullback in durable goods orders in September suggests that businesses are not yet ready to expand capacity."
Like many other forecasters, those at Lehman Brothers have lowered their predictions for economic growth for the rest of this year and early next year. The Lehman forecast now calls for the economy to grow at only a 1 percent annual rate this quarter and at an annual rate of 1.5 percent in the first three months of 2003. And by early next year, the jobless rate is predicted to be 6.2 percent, a half-percentage point higher than last month.
Most analysts and investors are convinced that the recent string of bad economic news will cause the Fed next week to reduce its already low 1.75 percent target for overnight interest rates. But analysts are divided over whether the cut will be a quarter- or a half-percentage point. The decision will be made Wednesday at a meeting of the Federal Open Market Committee, the central bank's top policymaking group.
Fed officials are concerned that rising uncertainty over the prospect of war with Iraq and other factors will inhibit consumer and business spending and hold back economic growth for an extended period.
Stocks rose modestly yesterday as many investors apparently concluded that the bad economic news made a Fed rate cut more likely. The Dow Jones industrial average gained 120.61 points, or 1.4 percent, to 8517.64. The Nasdaq composite index rose 30.95 points, or 2.3 percent, to 1360.70. The Standard &Poor's 500-stock index climbed 15.20, or 1.7 percent, to 900.96.
In the October employment report, the Labor Department said that manufacturing payrolls fell by 49,000, the 27th consecutive monthly decline. Over that span, nearly 2 million factory jobs have disappeared. Construction payrolls dropped by 27,000, but gains in retail trade, services and government employment limited the overall net decline in payrolls to 5,000.
The number of hours worked on the job also fell last month. The length of the average workweek dipped by six minutes, to 34.1 hours, while the manufacturing workweek fell 12 minutes, to 40.7 hours.
The declines in hours worked and personal spending in September "point toward a flat economy in the fourth quarter," said Mickey D. Levy, chief economist for Bank of America Corp. in New York. "The decline in hours worked, which reflects businesses' cautiousness, also points to continued strong productivity gains amidst economic weakness."
The rise in the unemployment rate to 5.7 percent was primarily because of an increase in joblessness among adult women, whose rate rose to 5.2 percent from 4.9 percent. The rate for adult men was unchanged at 5.2 percent.
Many analysts had expected a larger increase in the unemployment rate because a large drop in joblessness among teenagers had been responsible for a fall in the jobless rate in September. Instead, the teen rate fell again last month, to 14.6 percent from 15.7, an indication that fewer teens than usual were hired for summer jobs this year.
The jobless rate among whites was unchanged at 5.1 percent. The rate for blacks rose to 9.8 percent from 9.6 in September, and among persons of Hispanic origin it rose to 7.8 from 7.4 percent.
Norbert J. Ore, chairman of the Institute for Supply Management's business survey committee, said the manufacturing sector has shown little change in the past four months and "lacks drivers at this point."
"The uncertainty with regard to terrorism and potential military action continue to add to the stagnation. Capital spending for additional capacity and IT is very soft," Ore said in a release. "It appears that manufacturing employment is significantly lagging other recoveries."