Slowdowns Hit Manufacturing Growth, Construction Spending

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Mark Lennihan/APAn apartment building under construction in December in Fort Lee, N.J.
NEW YORK - U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in years, suggesting the economy had lost steam at the start of 2014.

The economic picture was also darkened Monday by other data showing spending on construction projects barely rose in December.

The Institute for Supply Management said its index of national factory activity fell to 51.3 last month, its lowest level since May 2013, from a recently revised 56.5 in December.

"This offers a sobering glimpse on the weakening in growth in recent months, confirming the souring tone in other important economic indicators," said Millan Mulraine, deputy chief economist at TD Securities (TD) in New York.

U.S. stocks extended losses on the data, while prices for U.S. Treasury debt rose. The dollar fell against a basket of currencies.

January's ISM figure was also well below the median forecast of 56 in a Reuters poll of economists, missing even the lowest estimate of 54.2. Readings above 50 indicate expansion.

But some of the weakness could be weather-related.

"Nevertheless, to the extent that much of this weakening in growth momentum has been due to the cold weather conditions nationally, %VIRTUAL-article-sponsoredlinks%we expect this slowdown to prove temporary and look for a meaningful rebound in activity in the coming months as the weather-effects dissipate," Mulraine added.

The January reading, which marked a second straight month of slowing growth from November's recent peak reading of 57, which had been the highest since April 2011, indicated manufacturing was cooling off from its strong growth in the fourth quarter.

The biggest red flag in the ISM report was the huge drop in the forward-looking new orders index, which fell to 51.2 from 64.4 in December. That 13.2-point drop was the largest monthly decline in the key component since December 1980.

Indicators of employment, production and inventory growth also declined from December. At 52.3, the employment reading was the weakest since June and well below December's 18-month high of 55.8.

In a separate report, the Commerce Department said construction spending rose 0.1 percent in December after advancing 0.8 percent the prior month.

While private construction spending increased 1 percent to a five year high, outlays on public construction projects tumbled 2.3 percent. That was the biggest drop in a year and reflected the drag from weak state and local government spending.

The government's advance fourth-quarter gross domestic product last week showed residential investment falling for the first time in three years and spending on non-residential structures falling for the first time since the first quarter of last year.

9 Numbers That'll Tell You How the Economy's Really Doing
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Slowdowns Hit Manufacturing Growth, Construction Spending
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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