Layoffs decline at slower pace, manufacturing up in US: preview

Updated: Aug 31 2009, 05:48am hrs
Employers in the US probably cut jobs in August at a slower pace and manufacturing grew for the first time in more than a year, adding to evidence the worst recession since the 1930s is ending, economists said before reports this week.

Payrolls fell by 2,30,000 workers, the smallest decline in a year, according to the median of 65 estimates in a Bloomberg News survey ahead of a September 4 Labour Department report. Figures from a private group of purchasing managers on September 1 may show the first expansion at factories since January 2008.

We are heading out of the tunnel, said Jonathan Basile, an economist at Credit Suisse in New York. It doesnt mean well have a very rapid recovery because consumers still face many headwinds.

The worst employment slump in the post-World War II era, a record loss of wealth and mounting foreclosures are among the obstacles American households have to overcome before any recovery can gain speed. Government programs, including cash for clunkers and credits to first-time homebuyers, may help the economy expand in the second half of the year.

The jobless rate in August is likely to climb to 9.5% from 9.4% the prior month, according to economists surveyed by Bloomberg. Unemployment will reach 10% by early 2010, a Bloomberg poll this month showed.

Payroll losses peaked at 7,41,000 in January, the most since 1949. The US has lost 6.7 million jobs since the recession began in December 2007.

Some companies continue to eliminate jobs to cut costs and boost profits amid weak sales. Whirlpool Corp, the worlds largest appliance maker, said last week it will close a manufacturing plant in Evansville, Indiana, resulting in the loss of 1,100 jobs, or about 1.6% of the companys workforce.

A record reduction in inventories over the first half of the year sets the stage for production to rebound, economists said. Companies including General Motors Co and Chrysler Group LLC, both out of bankruptcy, may benefit from higher sales and a boost to output from the governments cash-for-clunkers effort.

The incentive programme, which offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, produced almost 7,00,000 automobile sales before ending on August 24, the Transportation Department said last week.

Ford Motor Co, the second-largest US automaker, posted its first monthly US sales gain in July since 2007.

We had a solid July sales month and we are headed toward an even stronger August, Ford marketing chief Ken Czubay said last week in a statement.

The jobs report is also projected to show manufacturing employment dropped by 60,000 this month, up from 52,000 in July. The pace of industry cutbacks had declined since January, when 2,62,000 workers lost their jobs, the most since 1975.

One reason for the projected increase in factory job cuts this month is that the pace of hiring at carmakers probably ebbed. Automakers added 28,200 workers in July, the biggest one-month increase in more than a decade, the Labour Department said August 7.

GM this month called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosts second-half production, in part because of cash for clunkers.

Sales figures from the auto industry are due this week. Increasing demand will contribute to the stabilisation in manufacturing already taking place.

The Tempe, Arizona-based Institute for Supply Management may report in two days that its manufacturing index climbed to 50.5 in August, according to the Bloomberg survey median. Readings above 50 signal expansion.

Orders placed at factories likely jumped 2.2% in July, the most in two years, economists said ahead of a Commerce Department report due September 2.

Service industries, which make up almost 90% of the economy, are also likely to show signs of improving. The ISMs gauge of non-manufacturing businesses probably increased to 48 last month from 46.4 in July, according to the Bloomberg survey. The report is due September 3.

In other reports this week, the number of contracts to buy previously owned homes rose last month for a sixth consecutive time, according to the Bloomberg survey. A government report last week showed new-home sales in July increased the most since February 2005.

The S&P 500 homebuilder supercomposite index has climbed 41% since the beginning of the year, while the broader S&P 500 has increased 14% during the same period.