U.S. Economy Confidence Drops Factories Stagnate (Update2)
U.S. Economy: Confidence Drops, Factories Stagnate (Update2)
By Bob Willis and Courtney Schlisserman
Feb. 15 (Bloomberg) — Confidence among American consumers
slumped to the lowest level since 1992 and factory output failed
to increase, indicating the damage from the housing contraction
is pushing the economy toward a recession.
The Reuters/University of Michigan index of consumer
sentiment fell to 69.6 in February from 78.4 the previous month.
The Federal Reserve said manufacturing production was unchanged
in January after two months of gains, while a gauge of activity
at New York factories contracted this month.
“We;re seeing a clear pattern of sudden weakening in both
consumer and business confidence, which frankly is the sign of a
recession,;; said James O;Sullivan, a senior economist at UBS
Securities LLC in Stamford, Connecticut, who had the closest
forecast for consumer sentiment in a Bloomberg News survey.
U.S. government bonds rallied after the figures, sending
two-year note yields to the lowest level since 2004, while the
dollar dropped. The reports reinforced traders; anticipation
that the Fed will need to cut interest rates by at least a half-
point by the end of the March 18 meeting.
Best Buy Co., the largest U.S. consumer electronics chain,
today cut its full-year earnings forecast. “Soft domestic
customer traffic in January, coupled with our near-term outlook,
now indicate that our fourth-quarter revenue will fall short of
our planned targets,;; Chief Executive Officer Brad Anderson
said in a statement.
Waterford Warning
Waterford Wedgwood Plc, the Dublin-based maker of Royal
Doulton crystal and china, today forecast its sales will fall 4
percent this year, due to weaker consumer spending in the U.K.
and the U.S.
The reading on consumer sentiment was the weakest since
February 1992. Economists had forecast the measure would fall to
76, according to the median of 66 projections in a Bloomberg
News survey.
The decline in confidence indicates that pledges of tax
rebates and lower interest rates failed to ease Americans;
concerns about falling home and stock prices and rising
unemployment. President George W. Bush this week signed a $168
billion stimulus package, including tax rebates to more than 130
million households, after a deal with Democratic lawmakers.
“We;re starting ;08 with modest, if any, economic
momentum,;; Alan Gayle, senior investment strategist at Trusco
Capital Management in Richmond, Virginia, said in an interview
with Bloomberg Television.
Two-year note yields dropped as low as 1.82 percent, and
were at 1.91 percent at 4:02 p.m. in New York. Interest-rate
futures show the chance of a three-quarter point Fed rate cut,
to 2.25 percent, by March rose to 32 percent from 30 percent
yesterday.
Dependent on Utilities
Total industrial output rose 0.1 percent for a second
straight month, matching economists; forecasts, the Fed said
today. Production was held up by unusually cold weather that
spurred utility use. Manufacturing, which accounts for four
fifths of industrial production, was unchanged from December
after a 0.2 percent gain.
The Federal Reserve Bank of New York;s general economic
index fell to minus 11.7, the first negative reading since May
2005, from 9.0 in January, the bank said today. Readings below
zero for the so-called Empire State index signal contraction.
Fed Chairman Ben S. Bernanke yesterday told lawmakers that
the central bank is ready to act “as needed;; to address risks
to growth. His predecessor, Alan Greenspan, told an audience in
Houston late yesterday that “we are clearly on the edge.;;
`Clearly Struggling;
“Manufacturers are clearly struggling under the pressure
of slower consumer demand and a much more cautious corporate
sector,;; said Russell Price, senior economist at H%26amp;R Block
Financial Advisors in Detroit. “Exports are still a positive
for the sector but clearly they are not enough to offset these
other factors. The Fed still has more work to do.;;
Production of construction supplies dropped 1.1 percent in
January, today;s Fed report showed. Residential building
subtracted 1 percentage point from economic growth last year,
the most since 1980.
Reports this year indicate the housing slump is continuing.
Builders broke ground on 1.006 million homes at an annual rate
in December, the fewest since 1991. The National Association of
Realtors said last month sales of existing homes fell more than
forecast in December, while prices of single-family homes posted
the biggest annual drop probably since the Great Depression.
Capacity Use
Capacity utilization, which measures the proportion of
plants in use, was unchanged in January at 81.5 percent, today;s
report showed. Capacity utilization was forecast to fall to 81.3
percent. The rate has averaged about 81 percent over the last 30
years. Higher rates raise the risk of bottlenecks in production
that can push up prices.
Utility production rose 2.2 percent after falling 0.2
percent, the report showed. The average temperature in January
was 30.5 degrees Fahrenheit, 0.3 degree below the mean for that
month in the 20th century, according to the National Climatic
Data Center in Asheville, North Carolina. The Northeast was hit
by blizzard conditions at the end of the month.
Economic growth slowed to a 0.6 percent pace in the fourth
quarter, and the economy lost jobs in January for the first time
in more than four years. Economists surveyed by Bloomberg News
this month indicated even odds that the economy will enter a
recession this year.
Citing a worsening outlook, the Fed lowered its benchmark
interest rate by 1.25 percentage point during two meetings over
nine days in January, the fastest rate reduction since the
federal funds rate became the main policy tool around 1990.
Cars and light trucks sold at a 15.2 million annual pace in
January, the worst showing since October 2005, industry figures
showed. Economists for General Motors Corp., Ford Motor Co. and
Chrysler LLC said Jan. 15 that U.S. sales of cars and light
trucks may fall for a third straight year in 2008.
“This is going to be a challenging year for the auto
industry,;; said Paul Traub, a Chrysler economist, at a
conference in Detroit last month.
Delinquency rates on U.S. auto loans in asset-backed
securities rose in January to the highest levels in 10 years,
Fitch Ratings said. Delinquencies for subprime auto loans
reached 4.03 percent, a 43 percent increase from a year earlier,
the Chicago-based ratings company said in a report yesterday.
Exporters Benefit
Exporters are helping to keep manufacturing from a deeper
slump. General Electric Co. said fourth-quarter profit rose 15
percent on higher international sales of jet engines and power-
plant turbines, drawing more than half its annual revenue from
overseas for the first time.
GE Chief Executive Officer Jeffrey Immelt;s push into
global markets was led by a 30 percent jump in the GE
Infrastructure group;s sales, as developing countries built
cities, hospitals and airports, and the dollar weakened.
“Every place we went there;s a need for power, there;s a
need for planes, there;s lots of capital being invested, and
there;s just no sign this global infrastructure boom is slowing
at all,;; Immelt told a conference call Jan. 18.
To contact the reporters on this story:
Bob Willis in Washington at
