Aug 26, 2003 Reuters, 08.21.03, 3:42 PM ET
(Updates with Fed official comments)
By Pedro Nicolaci da Costa
NEW YORK, (Reuters) - Manufacturing in the U.S. Mid-Atlantic region surged well beyond Wall Street expectations in August and U.S. unemployment lines were shorter last week, lending renewed vitality to hopes for stronger growth ahead.
In a sign that the nation's long-beleaguered factories may be catching up to the rest of the economy, the Federal Reserve Bank of Philadelphia said its monthly industrial gauge leapt to 22.1 in August from 8.3 in July. The jump far exceeded economists' expectations of a rise to 9.9.
It was the third month of expansion for the highly industrialized region. A harbinger of growth, new orders expanded briskly, to 14.6 from 10.4.
"It just confirms the direction of the economy, which is going to see strong growth in the third quarter, especially in industrial production," said Elisabeth Denison, economist at Dresdner Kleinwort Wasserstein.
Still, the report was unlikely to quell lingering concerns that higher productivity has allowed firms to do more with fewer workers, and thus delay new hires. The Philly Fed's employment index slipped sharply to -8.7 from 0.8.
The jobless recovery trend was evident in Thursday's report on weekly jobless claims as well. While that survey showed a decline in claims for first-time jobless benefits to 386,000 in the week ended Aug. 16, the prior week's figure was revised up to 403,000.
In fact, St. Louis Federal Reserve Bank President William Poole warned Thursday the economy could enjoy sustained growth for "quite some number of quarters" before the current slack in labor and product markets was taken up.
He said that while economic data had been coming in a bit brighter of late: "It doesn't seem to be registering very much in the business world yet."
JOBS ANGST
The latest data left economists wondering whether the recent downward pattern of jobless claims would translate into actual employment growth for the month of August.
The U.S. economy has bled jobs for six straight months, with a net 2.5 million positions lost since the start of 2001. The unemployment rate fell to 6.2 percent in July, but that was only because many people had given up looking for work and thus fell out of the official survey.
Just on Wednesday, Richmond Fed President Alfred Broaddus acknowledged that improved productivity was thwarting job creation.
"Rising productivity growth, which is longer-term good news, has in a sense produced a problem, because it has been a factor retarding job growth," he said.
Also lending support to the view that an all-out rebound is near, a key forecasting gauge rose in July for the fourth consecutive month, offering the best economic outlook in two years.
The Conference Board's index of leading indicators, which combines recent economic data into a forward looking indicator, rose 0.4 percent in July, matching market expectations, after a 0.3 percent increase in June.
The combined effect from the spike in the Philadelphia Fed's manufacturing barometer and the drop in new jobless claims lifted stocks and the dollar, while Treasury bond prices darted lower, pushing yields higher.
The claims report said last week's vast power blackout in the U.S. Northeast had a "minimal effect" on the data. A Labor Department spokesman said that "only one state inside the blackout region had an estimated 2,000 to 3,000 fewer claims because of filing difficulties."
But some economists were skeptical.
"We find that difficult to believe, as nearly one-quarter of the country was unable to file for unemployment insurance for one-fifth of the work-week," Drew Matus, economist at Lehman Brothers, said in a research note.
The massive power outage -- the biggest such failure in North American history -- struck the U.S. Northeast and Midwest, as well as part of eastern Canada on Aug. 14. The manufacturing data were not affected by the blackout since responses for that survey were submitted by Aug. 12.
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