US economy struggles for momentum

Factory activity in Middle Atlantic states braked sharply in April and the number of Americans claiming new jobless benefits fell less than expected, implying the economy was struggling to regain momentum. Other data on Thursday showed steep declines in home prices in February, underscoring the challenges confronting the economy, but the recovery is expected to remain on track.
-- Mid-Atlantic factory activity slows sharply in April
-- Initial claims fall 13,000, but stay above 400,000
-- US home prices fell 1.6pc in February
The reports came a week before government data is expected to show growth slowed significantly in the first quarter. The economy grew at a 2.0 percent annualised rate, according to a Reuters survey, after a 3.1 percent pace in the last three months of 2010.
The Philadelphia Federal Reserve Bank's business activity index fell to 18.5 in April, pulling back from March's 27-year high of 43.4 and far exceeding economists' expectations for a drop to 37. The index covers Pennsylvania, southern New Jersey and Delaware and is an early indicator of the health of US manufacturing contained in a later national report. Separately, the Labour Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 403,000 last week, well above economists' expectations for a decline to 392,000.
The slowdown in economic activity comes as some policymakers at the Federal Reserve are pushing for the US central bank to start considering withdrawing some of the stimulus it has provided the economy. The Fed's policy-setting committee will meet April 26-27 to assess the economy and is expected to reaffirm a June end date for purchases of $600 billion of government bonds.
Thursday's economic data curtailed stock market gains, which began with a flurry of strong corporate earnings. Treasury debt prices rose marginally, while the dollar fell against a basket of currencies. "While affected individuals can file claims for unemployment insurance when these plants close temporarily, it is unlikely that workers were laid off for the entire payroll period, meaning they would still count as employed in the payroll survey data," said Daniel Silver, an economist at J.P. Morgan in New York.
The claims data covered the survey period for April's nonfarm payrolls report, which will be released in early May. Employers added 216,000 jobs in March, the most in 10 months, and the unemployment rate slipped to a two-year low of 8.8 percent from 8.9 percent.
The smaller-than-expected drop in claims last week left the total above 400,000 for a second straight week. Claims below that level are usually associated with fairly solid jobs growth.February from January provided more evidence of the headwinds buffeting the economy. On a year-over-year basis, home prices fell 5.7 percent.
Despite the sharp pullback in April, mid-Atlantic factory activity has now expanded for seven months in a row. Economists did not view the report as a sign that manufacturing, which as led the economic recovery, was slowing. A report last week showed a gauge of manufacturing in New York state rose in April to its highest level in a year.