Skip to content
Link copied to clipboard

Reports: Recovery sputtering

May saw slowdowns in manufacturing and hiring. Carmakers also had some bad news.

Weak reports Wednesday on jobs and manufacturing indicated that the nation's economic rebound may be running out of steam and spooked the stock market.

Adding to the gloom, domestic automakers said their sales fell in May, the first monthly decline this year. Some of that resulted from a parts shortage after Japan's powerful earthquake in March.

"It's a confluence of headwinds hitting the economy," said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York, citing a jump in gasoline prices and risks posed by the European debt crisis.

"In this recovery, the pace of economic activity is slower, and that makes the economy more vulnerable to these types of headwinds," Riccadonna said.

On Wall Street, the day's reports pummeled stock prices, with the three major indexes each down by more than 2 percent. The Dow Jones industrial average snapped a four-day winning streak and fell 279.65, its biggest one-day decline since early June last year. And of the Standard & Poor's 500 stocks, 490 fell.

Two key reports Wednesday on the labor market - from ADP Employer Services and Challenger, Gray & Christmas Inc. - showed a sharp and unexpected slowdown in hiring announced by employers last month.

"Everyone has a different excuse not to hire," said Ren Cicalese, managing shareholder at the Cherry Hill accounting and consulting firm the Alloy Silverstein Group.

It conducted its own survey with responses from 112 Philadelphia-area chief executive and chief financial officers, who called unemployment the major factor contributing to the struggle in the recovery from the 2007-09 recession.

Meanwhile, a widely followed index of manufacturing activity - while still showing some growth in the sector in May - was at its slowest pace in 20 months.

Manufacturing, which had been benefiting from a pickup in exports to countries such as China and Brazil, began to cool in the aftermath of Japan's earthquake.

Here are details of Wednesday's key economic reports:

Jobs. Companies added 38,000 workers to payrolls, the fewest since September, according to ADP, a payroll processing firm. That was down from 177,000 in April, ADP said.

Separately, Challenger Gray's report said companies announced plans to hire just 10,000 workers in May compared with nearly 60,000 in April.

But it also said layoffs announced last month were virtually unchanged at 37,135 - with government and nonprofit groups accounting for 40 percent of them.

Manufacturing. The Institute for Supply Management, a trade group of purchasing executives, said its index of manufacturing activity fell to 53.5 in May from 60.4 in April and a high of 61.4 in February.

Any reading above 50 indicates growth in manufacturing, and May marked the 22d straight month of expansion in what has been one of the few sources of strength for the economy since the recession ended in June 2009.

Still, last month's figure was the weakest since September 2009. And the decline from April's pace was the sharpest one-month drop since 1984.

The manufacturing index had topped 60 for the first four months of the year. Manufacturers had increased production to meet overseas demand for computers and other long-lasting equipment.

Although manufacturers in most industries reported growth in May, all said they felt squeezed by the rising costs of fuel, chemicals, metals, and other inputs. High prices for oil and other commodities have also dampened consumer spending, which has led to less demand for factory goods.

Indeed, Air Products & Chemicals Inc., of Allentown, on Wednesday announced price hikes of 5 percent to 10 percent on five products lines and of up to 25 percent on a line of adhesives.