The U.S. economy continues to struggle, but data released Thursday suggest it's not slipped--or about to slip--into recession.
The manufacturing sector appears to have grown at a worryingly slow rate in August--but at least it's not contracting as some feared. Meanwhile, the number of people filing new claims for unemployment benefits last week dropped, though their continued high level indicates that hiring remains slow. And the housing sector is, as expected, still in the dumps.
The biggest surprise in Thursday's indicator releases came from a survey of manufacturers, which showed the sector managed to skirt contraction in August. The ISM's manufacturing purchasing managers index fell only to 50.6 from 50.9 in July. A reading above 50 indicates expanding activity. Economists were fearing a drop to 48.8.
"To call this a relief is something of an understatement," said Ian Shepherdson, chief economist at High Frequency Economics. "It could have been horrendous."
Since the end of July, when a government snapshot of the economy showed it barely grew in the first half, fears have been mounting that a new recession could hit the U.S. only two years after the deep downturn of 2008 and 2009. A plunge in a survey of manufacturers by the Philadelphia Fed Aug. 18 exacerbated those fears.
The expansionary reading for the U.S. manufacturing sector out Thursday contrasted with factory contractions reported around the globe. Manufacturing activity shrunk in the euro zone, the U.K., Australia and South Korea, while there were mixed signals from China.
Even with the better-than-expected PMI in the U.S., the details of the report were generally weak. The ISM's new orders index remained in contraction territory at 49.6, raising the risk that employment may have fallen in September following what's expected to be a weak jobs reading last month.
"The manufacturing sector peaked in April and May and has been sliding ever since," said Steve Blitz, economist at ITG Investment Research. "Current momentum strongly suggests that September will be weaker still and that will finally spill over into payrolls."
Meanwhile, the Labor Department Thursday said that initial jobless claims fell by 12,000 to a seasonally adjusted 409,000 in the week ended Aug. 27.
Economists had forecast claims would drop by less than they did. A Dow Jones Newswires survey put the expected decline at 7,000. However, the level remains too high: economists generally think the economy is adding more jobs than it is shedding when claims drop below 400,000.