Archive for Wednesday, September 2, 2009

Hopeful economic signs tempered by wary consumers

September 2, 2009


— New signs of economic recovery emerged Tuesday only to be overshadowed by new worries that they won’t last.

The U.S. manufacturing sector grew in August for the first time in 19 months. A gauge of future home sales surged in July to its highest point in more than two years. And auto sales — boosted by the Cash for Clunkers program — appeared in August to have marked their first year-over-year monthly gain since October 2007.

Yet hopes for a sustained recovery remain clouded by a big concern: consumer spending, which fuels about 70 percent of U.S. economic activity.

Americans are hamstrung by flat wages and job losses and aren’t borrowing and spending enough to nourish a lasting rebound. That raises the vexing question of who will buy all the goods that manufacturers are producing?

Skepticism about a recovery contributed to a nasty tumble on Wall Street Tuesday, following a monthslong rally. All the major averages fell about 2 percent, with the Dow Jones industrials sliding 185 points, as concerns grew about the fragility of the banking industry and the global economy.

Stock market analysts noted that the manufacturing and housing gains were boosted by temporary government stimulus steps, including the Cash for Clunkers program, which has since expired. The clunkers program helped lift sales at Ford, Toyota and Honda in August, though Chrysler Group LLC and General Motors Co. withstood another month of falling sales.

“People reviewed the numbers and said this type of demand is just not sustainable,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC.

At the same time, the National Association of Realtors said its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2 percent to 97.6. It was the sixth straight increase and 12 percent above the same month last year.

U.S. construction spending dipped in July as weakness in nonresidential building and government projects offset the best showing for home building in 10 months.

At the moment, manufacturers may be the economy’s strongest pocket of strength. Yet even that might prove short-lived if demand doesn’t pick up, analysts said.

The better-than-expected report from the Institute for Supply Management showed the highest number for its manufacturing index since June 2007. New customer orders jumped to a level not seen since late 2004.


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