WASHINGTON (Reuters) – US manufacturing activity has suddenly slowed down in March, a worrying sign for the economy, although the housing market has shown signs of lower interest rates.
A man walks his dog in front of a mural depicting workers in the Pullman Historic District in Chicago on November 20, 2014. REUTERS / Andrew Nelles
The Markit Financial Data Manager Purchasing Managers Index for the US manufacturing sector fell to 52.5 in March, its lowest level since June 2017. Both new orders and production declined.
Analysts polled by Reuters expected a strengthening of the tonnage from 53.0 to 53.6 in February. Readings above 50 points indicate growth in the sector.
The slowdown in manufacturing in the United States is part of a global trend in which international trade tensions seem to leave a mark on manufacturing production. Markit also published PMI reports showing that the factories' activity was contracting in the euro zone and Japan.
These reports have reduced the gap between 3-month T-bill yields and 10-year note yields for the first time since 2007. The inverted yield curve is widely viewed as a leading indicator of dividend yield. recession. US stock prices also fell.
If the US went into recession, some economists argued that the federal government's massive budget deficit could limit its ability to sustain growth.
The federal government recorded a deficit of $ 234 billion in February, the largest budget deficit ever recorded, according to Treasury data in a monthly report.
The fiscal situation has deteriorated as a result of a major tax reduction adopted in 2018, the government having lost nearly $ 1 trillion in the red during the 12-month period ended in February.
Already, signs of a global slowdown have played an important role in the announcement by the Federal Reserve in recent months of a pause and possibly the end of its cycle of rising interest rates that began in 2015.
Some economists are concerned that the Fed has already raised rates too much. The US housing market has spent much of 2018 in a dismal state, held back by higher rates.
On Friday, however, a report by the National Association of Realtors indicated that home sales in the United States jumped in February, reaching their highest level since March 2018.
Existing home sales jumped 11.8%, reaching a seasonally adjusted annual rate of 5.51 million units last month, NAR said.
This is above analysts' expectations and could indicate that the Fed's pause on rate hikes favors home sales.
"Mortgage rate cuts are beginning to provide support," said economists at Oxford Economics in a note to their clients.
However, the US economy is already slowing, in part because of the disappearance of a major fiscal stimulus package in 2018.
The New York Federal Reserve said that one of its forecast models indicated a growth rate of 1.29% in the first quarter. This is well below the 2.9% growth recorded in 2018, slightly below the 3% growth target set by US President Donald Trump.
Another potential outcome for the economic outlook, Commerce Department data show that stocks of US wholesalers rose the largest increase in more than six years in January.
While this may reinforce the standard measure of economic growth in the first quarter, this could also indicate that small consumer purchases are a sign that products will be stored on corporate shelves.
"(This) indicates some weakness in final demand," Barclays said in a note to customers.
GRAPHIC – USA-ECONOMY-HOMESALES interactive: tmsnrt.rs/1SX25aY
GRAPHIC – US PMI: Markit vs. ISM DataStream Chart: tmsnrt.rs/2eNBHoc
GRAPHIC – Budget deficit: tmsnrt.rs/2UXbaqo
Jason Lange report; Additional reports by Paul Simao in Washington and Richard Leong in New York; edited by Andrea Ricci and Chizu Nomiyama