Factories lie at the center of recent economic slump
Was weak payroll growth in August and September a blip or the start of a sustained slowdown? This week's employment report could help answer that question.
The jobs survey, along with other data on the manufacturing and service sectors, also will shed light on whether economic growth in the fourth quarter will perk up from the sluggish third-quarter pace the government reported Thursday.
At the heart of the recent slump are the nation's factories. They've been struggling because a strong dollar is making their exports more expensive for foreign buyers even as global demand has weakened amid China's recent slowdown. Also, low oil prices are slowing drilling activity and related steel production. Economists don't believe that trend reversed in October, and they estimate the Institute for Supply Management will report Monday that its index of manufacturing activity slipped into contraction territory last month for the first time in three years. In other words, they reckon activity declined after rising each month since December 2012.
Construction has been a bright spot this year, with both residential and commercial building picking up. But commercial construction has slowed recently, partly because of a dip in industrial and utility projects. Economists expect the Commerce Department to report a modest 0.5% rise in construction spending in September.
Healthy construction activity has helped support the service sector, which largely has been insulated from the global troubles. Still, Lewis Alexander, chief U.S. economist of Nomura, says services firms recently have been affected by "some spillover" from the global turmoil and stock market volatility. Economists expect ISM to announce Wednesday the sector solidly expanded in October but at a modestly slower pace.
Job growth slowed in August and September to an average monthly pace of 139,000 from more than 200,000 the first seven months of the year. Economists largely blame the overseas weakness and market turbulence, which has dented business confidence and hiring plans. Recent data on jobless claims — a reliable gauge of layoffs — have been encouraging, but consumer perceptions of the labor market in surveys have dimmed, Alexander notes. Economists estimate the Labor Department will report Friday that employers added 177,000 jobs in October, an acceleration from the recent pace but below this year's average.