The U.S. economy is cooling after a surge in the third quarter, according to the latest reports on manufacturing and consumer spending that back the Federal Reserve's move Wednesday to cut interest rates.
The Institute for Supply Management's factory index fell to 50.9 in October, the lowest in seven months, from 52 in September and less than economists anticipated. Americans increased spending 0.3 percent in September, the Commerce Department said Thursday in Washington, also less than forecast. The Purchasing Manager's Index also saw a monthly decline.
"The reports we saw today are generally consistent with a slowing economy," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who accurately predicted the spending gain. "Consumer spending left the third quarter without a huge amount of momentum."
Readings above 50 signal expansion in the index."Trade is the only thing holding up manufacturing, and otherwise it's looking weak," said Edward McKelvey, senior economist at Goldman Sachs Group Inc. in New York. "The spending numbers suggest softer momentum coming out of the third quarter. The economy is in transition, and the growth we saw in the third quarter is in the rear-view mirror."
A burst in exports was a key contributor to the biggest increase in economic activity in 1 1/2 years in the third quarter as a declining dollar made U.S. goods cheaper in the world marketplace and as U.S. firms cashed in on a strong global economy.
Exports rose 16.2 percent in the third quarter, more than double the rate of increase in the second quarter and the biggest gain in nearly four years, the Commerce Department said Wednesday.Exports of goods rose at the fastest pace in more than a decade, and sales of services abroad also gained.
A measure of the U.S. money supply rose by $9.7 billion in the week that ended Oct. 22, according to Federal Reserve statistics released in Washington.That left M2 growing at an annual rate of 6.5 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.
U.S. home foreclosures doubled in the third quarter from a year earlier as subprime borrowers failed to make higher payments on adjustable-rate mortgages, RealtyTrac Inc. said.
There were 635,159 foreclosure filings in the quarter, or one for every 196 households, including default notices, auction notices and bank repossessions, RealtyTrac said. Nevada, California and Florida had the top foreclosure rates, the research company said.
"Given the number of loans due to reset through the middle of 2008 and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets," Chief Executive Officer James Saccacio said in the statement.
The jump in foreclosures is exacerbating the U.S. housing recession by increasing the number of homes on the market as sales and prices decline.