(Updates with closing market prices in fifth paragraph.)
June 16 (Bloomberg) -- Manufacturing in the Philadelphia region unexpectedly contracted in June and Americans’ views on the economy’s outlook soured, signaling an erosion of confidence in the expansion.
The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.7, the lowest since July 2009, from 3.9 the prior month. Readings less than zero signal contraction. The Bloomberg gauge of economic expectations slumped to minus 31 this month, the weakest since March 2009, from minus 16.
The Fed’s report corroborates data yesterday showing New York-area manufacturing shrank in June and adds to evidence the economy’s slowdown extended through the second quarter. Unemployment above 9 percent makes it difficult for Americans to ramp up spending, helping explain why central bankers may keep the benchmark interest rate near zero into 2012.
“Economic data have taken a decided turn for the worse, manufacturing in particular,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. Job growth “is going to prove fairly disappointing,” he said, and that means “the consumer is not going to have enormous ammunition for spending.”
Stocks rebounded, a day after the Standard & Poor’s 500 Index dropped to a three-month low, as better-than-estimated housing starts and jobless claims reports tempered concern about Europe’s debt crisis. The S&P 500 rose 0.2 percent to 1,267.64 at the 4 p.m. close in New York.
First-time filings for unemployment benefits declined by 16,000 last week to 414,000, Labor Department figures showed today. Economists surveyed by Bloomberg News projected 420,000 claims, according to the median forecast.
Construction began on 560,000 houses at an annual pace, up 3.5 percent from the prior month and exceeding the 545,000 median forecast of economists, Commerce Department figures showed.
The median forecast of 54 economists surveyed before the Federal Reserve Bank of Philadelphia’s general economic activity index was 7. Estimates for the manufacturing gauge that covers eastern Pennsylvania, southern New Jersey and Delaware ranged from zero to 19.5.
The Fed report also showed the outlook for the next six months among Philadelphia-area factories dropped to 2.5 in June, the lowest since December 2008, from 16.6. Part of the pessimism may stem from supply disruptions related to the Japanese earthquake in March.
“The economy isn’t growing strong enough to generate enough jobs to start really attacking the unemployment rate,” Ford Motor Co. Controller Bob Shanks said at an industry conference yesterday. “Consumer confidence isn’t as strong as you’d like it to be.”
Payrolls Growth Slows
Payrolls grew at the slowest pace in eight months in May, and the jobless rate unexpectedly climbed to 9.1 percent from 8.9 percent. A report yesterday showed the cost of living rose more than forecast last month, threatening to erode the buying power of consumers whose spending accounts for 70 percent of the economy.
The Philadelphia Fed’s employment index was the weakest since October, while the measure of new orders dropped to the lowest level since June 2009.
The overall index isn’t composed of the individual measures, one reason some economists consider it a gauge of sentiment among manufacturers. Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing during the month. The ISM data are due on July 1.
New York Fed
Figures from the New York Fed yesterday showed the so- called Empire State index dropped to minus 7.8, the lowest level since November, from 11.9 in May.
Americans’ views on the economy’s outlook soured in June, showing that unemployment, inflation and the slump in housing are worrying consumers, according to the Bloomberg consumer comfort report.
The 15-point decrease in the Bloomberg gauge of economic expectations was the biggest one-month drop since December 2008. The Bloomberg Consumer Comfort Index, issued weekly, improved to minus 44 in the period to June 12, the highest level since mid April, from minus 45.9 as gasoline prices kept falling.
“Working-class households indicated a growing dissatisfaction with the direction of the economy, likely due to rising inflation and an elevated rate of unemployment,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “This group is likely experiencing the most difficulty in adjusting to the higher costs of necessities and the inability to draw on credit due to the relatively tight credit conditions.”
Bloomberg’s monthly measure of the economy’s direction showed the proportion of people saying things are getting worse jumped the most since September 2009, while fewer people said the economy is getting better. Forty-seven percent of those surveyed had a more negative outlook, compared with 36 percent in mid May. Sixteen percent said the economy is getting better, down from 20 percent.
--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Christopher Wellisz
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