Factory activity in the U.S. Midwest slowed just a bit in August and private employers continued to hire despite extreme financial market turmoil, easing fears the economy would fall back into recession.
Other data on Wednesday showed a strong rebound in demand for manufactured goods in July as orders for motor vehicles posted their largest gain since 2003, another suggestion a recession could be avoided despite some weak economic signals.
For those of us who don't believe the economy is in a free fall, we have got some support, said David Resler, chief economist at Nomura Securities International in New York.
The Institute for Supply Management-Chicago said its business barometer fell to 56.5, the lowest since November 2009, from 58.8 in July. However, the reading was above economists' expectations and indicated activity continued to grow.
A separate report from payrolls processor ADP showed private employers added 91,000 new jobs this month after expanding payrolls by 114,000 in July.
The ADP figures come ahead of the U.S. government's much more comprehensive labor market report on Friday, which is expected to show a modest increase in employment, despite the dampening effect of a strike at Verizon Communications.
JOB MARKET NOT FALLING APART
While the ADP report has a poor track record of predicting nonfarm employment, it offered hope businesses had not pulled back sharply on hiring despite a big stock market sell-off and a loss of both business and consumer confidence.
Other data showed the number of planned layoffs at U.S. firms declined in August after rising for three months in a row, although the cuts were well above year-ago levels.
The labor market is soft but not falling apart, said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The economy is not on the verge of a recession.
Slower-than-expected growth has fueled speculation the Federal Reserve could launch another round of bond buying to try to drive long-term borrowing costs lower.
Atlanta Fed President Dennis Lockhart said the U.S. central bank could ease monetary policy further and should not rule out any policy options if economic conditions deteriorate.
In more adverse scenarios, further policy accommodation might be called for, Lockhart said. But as of today, I am comfortable with the current stance of policy.
Prospects of further monetary easing helped lift U.S. stock prices on Wednesday, but bond prices fell as investors viewed the economic data as not signaling a recession. The dollar rose against a broad basket of currencies.
High unemployment is a major concern for the U.S. central bank. Nonfarm payrolls are expected to have increased by only 75,000 in August, according to a Reuters survey, slowing from July's 117,000 rise. The jobless rate is seen holding at 9.1 percent.
MANUFACTURING SHOWS SOME RESILIENCE
The modest slowdown in Midwest factory activity suggested national manufacturing might not be cooling as fast as had been flagged by other regional surveys.
It also implied that forecasts for the Institute for Supply Management's index of national manufacturing to fall to 48.5 in August from 50.9 in July may be overdone. The survey will be published on Thursday.
A reading below 50 indicates a contraction, but economists say a reading of 48.5 would still be inconsistent with an overall recession.
The ISM does not take into account that the auto industry is getting a very strong pick-up in orders as parts are replenished and production is continuing, said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
Strong demand for motor vehicles helped lift orders for manufactured goods by 2.4 percent in July, the Commerce Department said. Factory orders had fallen 0.4 percent in June.
Orders for motor vehicles advanced 9.8 percent. That was the biggest gain since January 2003 and suggested that auto shortages caused by supply chain disruptions following the March earthquake in Japan were easing.
(Additional reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler)