No Repeating Slowdown Seen by U.S. With Banks to Housing

May 7 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, and Julia Coronado, chief economist for North America at BNP Paribas in New York, talk about U.S. employment and the outlook for the economy. They speak with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The smallest gain in U.S. payrolls in six months need not presage the kind of slowdown that bedeviled the world’s largest economy for the past two years.

Rising auto sales, improving bank credit and stabilization of housing are among the signs the economy is more resilient now than it was around the same time in 2010 and 2011, according to Marisa Di Natale, an economist at Moody’s Analytics in West Chester, Pennsylvania.

“From where we sit right now, we think the economy looks fundamentally stronger,” Di Natale said. “Surveys of business and consumer confidence are better, the labor market data looks a lot better than it did last year, even some of the housing data looks better.”

Stocks and bond yields fell on May 4 after a report showing payrolls climbed 115,000 in April, less than the 160,000 median forecast in a Bloomberg News survey of 85 economists. The slowdown followed data showing the pace of economic expansion cooled in the first quarter, prompting concerns that another pickup in growth may again be sputtering.

In 2011, the economy was rocked by repeated shocks. Oil prices soared as a result of political upheaval in the Middle East, a tsunami and earthquake in Japan disrupted manufacturing supply chains, Europe’s debt woes deepened and U.S. lawmakers struggled to reach an accord to raise the debt ceiling.

Payroll growth slowed to an average monthly pace of 80,000 in the period from May through August 2011, from 207,000 in the first four months of the year.

Tax Credit

The expiration of a U.S. government tax credit to homebuyers contributed to a slowdown in residential construction that hurt growth in late 2010. The economy grew at an average 2.4 percent pace in the last six months of that year after expanding at a 3.9 percent pace in the first half.

Most stocks rose following the biggest weekly decline of the year, as investors weighed Francois Hollande’s election as France’s president and Greek voters flocking to anti-bailout parties. About six stocks rose for every five that fell on U.S. exchanges at the close in New York. The Standard & Poor’s 500 Index increased less than 0.1 percent to 1,369.58.

Elsewhere, German factory orders climbed more than forecast in March as demand from outside the euro area helped Europe’s largest economy weather the sovereign debt crisis.

In Australia, retail sales jumped 1.8 percent in the first quarter from the final three months of last year, the strongest performance since 2009, the Bureau of Statistics said in Sydney.

Comparisons Overstated

Comparisons between the U.S. economy this year and last are overstated, said Ian Shepherdson, chief U.S. economist for Valhalla, New York-based High Frequency Economics.

“The economic cause of the slowdown last year was much more substantial,” ” he said, adding that energy prices are already declining and Europe’s debt crisis hasn’t spread to U.S. banks. “There’s nothing I see fundamentally changed in the economy over the last couple of months.”

The average price of regular gasoline fell to $3.78 a gallon on May 6 from a 2012 high of $3.94 on April 4, according to data from AAA, the biggest U.S. auto group. The price of oil fell to $98.49 a barrel on the New York Mercantile Exchange on May 4 from a 2012 high of $109.77 on Feb. 24.

First-time applications for unemployment benefits are also falling. Jobless claims dropped to 365,000 in the week ended April 28 from 392,000 the previous week, close to the lowest level since the economic recovery began in June 2009.

Average Jobless Claims

Claims this year have averaged 373,000, compared with 417,000 in the first four months of 2011 and 475,000 in the same period of 2010.

The current level of claims is consistent with gains in payrolls of about 200,000, Shepherdson said. He forecasts the economy will add 230,000 jobs in May.

Not everyone agrees the U.S. economy is out of the danger zone. Oil prices may yet rise again, Europe’s debt crisis is still smoldering and Congress is gridlocked over budget cuts, said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.

“There are big risks out there, and those haven’t gone away,” Schenker said. “And the current state of the economy, even excluding those risks, is one of very modest job creation and modest growth.”

Still, consumer confidence is higher this year, underpinning the spending that accounts for 70 percent of the world’s largest economy. Consumer spending rose at a 2.9 percent pace in the first quarter, the fastest in more than a year.

Comfort Index

The Bloomberg Consumer Comfort Index reached a four-year high in early April. Other measures also improved, with the Thomson Reuters/University of Michigan sentiment gauge reaching a one-year high last month, and the Conference Board’s index hovering near the one-year high reached in February.

Stock-market gains, propelled by better-than-forecast corporate earnings, are helping to boost consumer wealth and optimism. The S&P’s 500 Index was up almost 9 percent this year through May 4, even after last week’s jobs report trimmed its rally.

About 70 percent of S&P 500 companies that reported results since the start of the earnings season have beaten projections, according to data compiled by Bloomberg.

Visa Inc. (V), the biggest payments network, said May 2 that its fiscal second-quarter profit surged 47 percent as customer spending on credit and debit cards rose. The company boosted its profit outlook and its stock is now up 16 percent this year.

Credit Products

“Our strong financial performance this quarter was fueled by continued growth of U.S. credit products, strong cross-border spending and expansion of Visa’s core business in international markets,” Chairman and Chief Executive Officer Joseph W. Saunders said in a statement.

Job gains, record low mortgage rates and cheaper properties are underpinning residential real estate. Data released last month showed better-than-estimated new-home sales and a slowdown in price declines are bolstering optimism that the market is poised for a sustainable recovery.

Warren Buffett, whose Berkshire Hathaway Inc. has more than $19 billion invested in U.S. banks, said the lenders have ample liquidity and are a class apart from European rivals.

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape.”

Loan Standards

U.S. banks “reported having eased standards on credit card, auto and other consumer loans,” according to the Federal Reserve’s survey of senior loan officers, released April 30. “Demand for consumer loans reportedly continued to increase, especially for auto loans.”

Julia Coronado, chief economist for North America at BNP Paribas in New York, said that report shows “there is some credit easing, and I would categorize it as the fading of a headwind” for the economy.

Loan growth has helped bolster U.S. auto sales that reached an annual pace of 14.4 million in April, up from an average of 12.7 million in 2011 and 11.6 million in 2010, according to data from Ward’s Automotive Group.

Stronger demand for automobiles bolstered U.S. manufacturing, which grew in April at the fastest pace in almost a year, according to Institute for Supply Management. The group’s factory index climbed to 54.8 last month, the best reading since June.

Skipping Shutdowns

Chrysler Group LLC, the biggest gainer of U.S. market share through April, said four plants will skip normally scheduled two-week midyear shutdowns to meet increased demand.

Factories in Belvidere, Illinois; Toluca, Mexico; and Detroit, and a parts factory in Toledo, Ohio, will stay open, the company said May 2 in a statement on its website. Two more plants will shut for one week instead of two, according to Auburn Hills, Michigan-based Chrysler.

“We need to build a few more vehicles, so they’re staying open,” Jodi Tinson, a company spokeswoman, said in a phone interview last week.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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