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Is the Recovery Starting to Stall?

Written By Brian Hicks

Posted September 30, 2009





There were two data points released this morning and neither one of them was particularly bullish.

In fact, when the Chicago PMI number hit the tape at 9:45 the market sold off hard before rebounding later in the day.

Even still, the numbers were bad enough to give the green shoots crowd something to ponder, since the recovery is starting to stall.

From Bloomberg by Courtney Schlisserman and Bob Willis entitled: U.S. Economy: Chicago Index, Payroll Data Signal Slow Rebound

“The U.S. recovery may be slow to develop as a gauge of business activity dropped unexpectedly and a private report showed employers cut more jobs than forecast in September.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 46.1, lower than the most pessimistic forecast, from 50 in August. Readings below 50 signal a contraction. Companies cut payrolls by 254,000 jobs in September, according to ADP Employer Services.

Stocks fell on concern a rebound may be uneven as the government winds down incentives such as the “cash-for- clunkers” program that lifted sales at automakers including Detroit-based General Motors Co. With excess capacity close to a record, companies have little reason to hire new workers or ramp up production until they see stronger gains in demand.

“The pace of improvement will probably slow,” said Rob Carnell, chief international economist at ING Financial Markets in London, whose forecast for a reading of 49.5 for the Chicago index was the lowest among 61 economists surveyed. “You strip away a lot of the stimulus and we’re not seeing a whole lot of improvement in the U.S. economy.”

Economists forecast the Chicago gauge would rise to 52, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 49.5 to 55. The ADP report was forecast to show a decline of 200,000 jobs, according to the median of 33 estimates.

A report from the Commerce Department showed the worst U.S. recession since the 1930s eased more than anticipated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to revised figures. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.

Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy.

The ADP employment report comes two days before a Labor Department release forecast to show the unemployment rate rose to 9.8 percent in September, the highest since 1983, while employers cut 180,000 jobs.

ADP includes only private employment and doesn’t take into account hiring by government agencies. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

The economy has lost 6.9 million jobs since the recession began in December 2007, the most of any economic slump since the Great Depression.”


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