While the mixed reports on Thursday were more confirmation the economy continued to sputter in the second quarter, they also offered evidence that the recovery was on course to regain momentum as the year progresses.
“We are still in a soft patch, first evident in the first quarter, and now we are seeing more and more evidence that it extended into the second quarter,” said Robert Dye, a senior economist at PNC Financial Services in Pittsburgh.
“But at the same time we are also seeing the first glimmers of evidence that the economy will find terra firma in the second half of the year.”
The Philadelphia Federal Reserve Bank’s business activity index, which measures factory activity in the Mid-Atlantic region, dropped to -7.7, the lowest level since July 2009. It was the first contraction in nine months.
Economists had expected the gauge to rise to a positive 6.8. None of the 55 participants in a Reuters poll had expected a reading lower than zero, which indicates a contraction in activity.
Other data showed first-time applications for state unemployment insurance fell 16,000 to 414,000, suggesting the jobs market was improving after stumbling badly in May.
A third report showed groundbreaking for homes rose 3.5 percent to an annual rate of 560,000 units last month, retracing almost half of April’s steep decline. New building permits unexpectedly rebounded 8.7 percent to the highest level since December.
Coming on the heels of a survey on Wednesday showing a contraction in factory activity in New York state, the Philadelphia report could stoke fears of a sharp slowdown in manufacturing, a sector that has powered the US economic recovery.
Factory activity is being hampered by supply chain disruptions, particularly in the auto sector, following the March earthquake and tsunami in Japan. But the Philadelphia Fed and New York Fed surveys, where auto assembly may not be a big factor, suggested fundamental weakness in manufacturing.
Economists said there was a risk that the Institute for Supply Management’s index of national factory activity could contract in June after 22 months of expansion. The survey is scheduled for release on July 1.
In the Philadelphia survey, the six-month business conditions index hit its lowest level since December 2008 and the new orders measure tumbled to a two-year low.
“There is no way to separate the effect of slowing auto production from a general manufacturing slowdown in these data,” said Christopher Low, chief economist at FTN Financial in New York.
“But a decline in the six-month forward activity index suggests there is more to the slowdown in Philly area manufacturing than just a temporary parts shortage.”
Investors on Wall Street took the mixed economic data in stride, snapping up stocks after recent steep declines. Concerns that Greece could default on its debt lifted prices for US Treasury debt, while the dollar was little changed against a basket of currencies.
Despite the modest improvements in jobless claims and housing data, they remained at levels consistent with a muted economic recovery.
Initial jobless claims held above the 400,000 level for a tenth straight week. Economists associate claims below that level with a stable labor market.
A report earlier this month showed US employers added a scant 54,000 workers to their payrolls in May, with the jobless rate rising to 9.1 percent.
While both housing starts and permits rose last month, they remain near historical lows as builders face stiff competition from a glut of unsold previously owned homes on the market.
Economists expect the housing market to sink further this year before prices start rising only marginally in 2012, according to a Reuters poll.
Separately, data firm RealtyTrac reported that banks repossessed over 66,879 homes last month, down 4 percent from April.
Groundbreaking for both multi- and single-family homes rose in May, with permits lifted by a 23.2 percent surge in the multi-family segment. The increase in multi-family units reflects a growing demand for rentals as relentless home price declines encourage Americans to delay home purchases.
“There is movement beginning on the multi-family side reflective of the sharp drop in (rental) vacancies and the fact that rents are beginning to grow pretty strongly,” said Peter Muoio, a senior principal at real estate research firm Maximus Advisers in New York.
The report on jobless claims suggested the long-term unemployed were finding it somewhat easier to find jobs, although if May’s dismal pace of job creation continues their hopes could be dashed anew.
There were a total of 7.4 million Americans receiving unemployment benefits under all programs in the week ended May 28, down about 200,000 from a week earlier.
