Business activity gains steam, but how long will it last?

  • Article by: BLOOMBERG NEWS
  • Updated: December 1, 2012 - 5:04 PM
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FILE - In this Aug. 30, 2012 file photo, production line workers, Xiao Yins-Wong, left, and Chui M. Wong, straighten the wick in the candles at Chesapeake Bay Candle factory in Glen Burnie Md. The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first thought. The strength is expected to fade in the final months of the year because of uncertainty about looming tax increases and government spending cuts.

Photo: Jose Luis Magana, Associated Press - Ap

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Business activity in the United States expanded in November for the first time in three months, showing superstorm Sandy has been less damaging to the economy nationally.

The MNI Chicago Report's business barometer rose to 50.4 from 49.9 in October. A reading of 50 is the dividing line between expansion and contraction. The report's index of new orders, considered a leading indicator, dropped to the lowest point in more than three years, indicating the gains may not be sustained.

"The new orders number is concerning," said Jacob Oubina, senior economist at RBC Capital Markets in New York, who correctly forecast the gain in the Chicago index. "You've lost one of the main pillars of economic strength in an environment where the economy is extraordinarily soft."

The total reading contrasts with earlier reports from the Philadelphia and New York region that showed the largest Atlantic storm ever to hit the United States had halted manufacturing in that part of the country. At the same time, the prospect that lawmakers will be unable to avert $607 billion in automatic tax increases and spending cuts at the beginning of 2013 may prevent the economy from strengthening.

The median estimate of 53 economists surveyed by Bloomberg forecast the Chicago gauge would rise to 50.5. Projections ranged from 48 to 53.

The MNI Chicago Report's gauge of new orders fell to 45.3, the weakest reading since the recession ended in June 2009, from 50.6 in October. A measure of employment increased to 55.2 from 50.3. Production accelerated, with the index climbing to 54.7 from 51.8, today's report showed.

Consumer spending and business investment have slowed as the looming fiscal cliff hinders economic growth at the end of 2012.

Another report showed consumer spending unexpectedly declined in October and incomes stagnated in October as Sandy kept some in the Northeast from getting to work or from shopping at malls and car dealerships. Purchases decreased 0.2 percent, the weakest reading since May, after a 0.8 percent gain in the prior month, according to Commerce Department data.

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