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US manufacturing output shrinks in May

Washington, June 16, 2012

US manufacturing output contracted in May for the second time in three months and families took a dimmer view of their economic prospects in early June in signs that the American economy's recovery is on shaky ground.

Factory production shrank 0.4 per cent last month, the Federal Reserve said on Friday.

'It's more convincing evidence that the economy is stuck in low gear,' said Joe Manimbo, a market analyst at Travelex Global Business Payments.

Until recently, manufacturing had been a buttress of strength for the US economy, helping it to resist headwinds from Europe's snowballing debt crisis.

But in May, output sank at American plants making everything from cars to computers while another report showed factory activity in New York state cooled in early June.

Now household confidence in the economy is falling amid worries about deterioration in the jobs market and Europe's debt crisis.

That poses a big threat to President Barack Obama's chances of winning re-election in November. It could also lead consumers to cut back on spending, which would reduce economic growth.

'Consumers are scared,' said Sharon Stark, managing director at Sterne Agee in Birmingham, Alabama.

US consumer sentiment fell in early June to a six-month low, and a gauge of household confidence in the economy's future fell, too.

While manufacturing is an anchor of the economy, consumer spending is its foundation, accounting for about two-thirds of gross domestic product.

The slackening US recovery and a worsening debt crisis in Europe have bolstered expectations of a further easing of monetary policy by the Fed, although economists are divided on whether the central bank will act when it meets on Tuesday and Wednesday.

Hiring by US employers has slowed for four straight months, while retail sales contracted in May and new applications for jobless benefits have risen for five of the last six weeks.




Tags: economy | US | recovery | Output | manufacturing |

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