U.S. Economy: Manufacturing Index Rises to Five-Month High
By Bob Willis
Nov. 1 (Bloomberg) -- Manufacturing in the U.S. expanded at the fastest pace in five months in October, pointing to renewed strength in the industry that led the nation out of recession.
The Institute for Supply Management’s factory index increased to 56.9 from 54.4, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth. Consumer spending rose less than forecast in September and incomes dropped for the first time in more than a year, data from the Commerce Department also showed.
U.S. companies such as Caterpillar Inc. are benefiting from rising demand in overseas markets including China, where a report today showed manufacturing expanded in October at the fastest pace in six months. Today’s figures won’t deter the Federal Reserve from easing policy this week because economic growth and inflation remain below the Fed’s long-term goals, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.
“Manufacturing is still at the head of this recovery,” Hoffman said. “That said, we have a half-speed economy and a growth rate that’ll leave unemployment too high. More easing by the Fed is a given, and it’s just a question of how much.”
The factory index was forecast to fall to 54 in October, according to the median forecast in a Bloomberg News survey of 75 economists. Estimates ranged from 52 to 56.8. Manufacturing accounts for about 11 percent of the economy, and the factory measure has shown expansion for 15 straight months.
Stocks Rise
Stocks extended gains after the report. The Standard & Poor’s 500 Index increased 0.4 percent to 1,187.99 at 1:02 p.m. in New York. The yield on the 10-year Treasury note, which moves inversely to price, rose to 2.63 percent from 2.60 percent late on Oct. 29.
Caterpillar, the world’s largest maker of construction and mining equipment, on Oct. 21 raised its full-year earnings forecast and posted third-quarter profit that topped analysts’ estimates.
Chief Executive Officer Doug Oberhelman, 57, has announced plans in the past five months to build factories in Brazil and China, where economic growth is outpacing the U.S.
“Brazil is red hot,” said Oberhelman in an interview with Bloomberg Television from Peoria, Illinois. “We are adding a second plant in Brazil. We’ve had a number of announcements in China.”
A China purchasing managers’ index released by the country’s logistics federation rose to 54.7 last month from 53.8. A second China PMI, from HSBC Holdings Plc and Markit Economics, jumped to 54.8 from 52.9.
U.K. Manufacturing
A U.K. manufacturing gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply rose to 54.9 last month from 53.5, according to an e- mailed statement in London. Measures above 50 indicate expansion.
“Our business, especially in the emerging markets, has come back much faster than we had forecast,” Thomas Linebarger, chief operating officer of Indiana-based diesel engine-maker Cummins Inc., said during a teleconference with analysts on Oct. 26.
The ISM’s U.S. new orders climbed to 58.9 from 51.1, while the production index jumped to 62.7 from 56.5. Both were the highest in five months. Measures of employment and export orders also increased.
‘Fairly Strong’
The gain in orders suggests “manufacturing will continue fairly strong to finish out the year,” Norbert Ore, chairman of the ISM survey, said in a conference call from Atlanta.
Commerce Department figures released today showed consumer purchases increased 0.2 percent, the smallest gain in the third quarter. Incomes fell 0.1 percent, the first drop since July 2009.
The Fed’s preferred price measure, which excludes food and fuel, was unchanged from the prior month and was up 1.2 percent from a year earlier, the smallest gain since September 2001. The median forecast in the Bloomberg survey showed increases of 0.1 percent from the prior month and 1.3 percent from September 2009.
Central bankers meeting Nov. 2-3 are concerned economic growth is not strong enough to reduce an unemployment rate close to 10 percent. Fed Chairman Ben S. Bernanke said on Aug. 27 that the central bank “will do all it can” to sustain the recovery. Investors are anticipating policy makers will announce another round of asset purchases after buying $1.7 trillion in debt from December 2008 to March.
Inflation Projections
Inflation remains below the Fed’s longer-term projections, which are in a range of 1.7 percent to 2 percent. Growth in the 2.5 percent to 2.8 percent range is consistent with keeping the jobless rate stable, according to policy makers’ latest forecasts.
Economists Jan Hatzius at Goldman Sachs and Ethan Harris at Bank of America predict the Fed will spread an initial $500 billion in asset purchases over six months. Hatzius forecasts as much as $2 trillion in eventual asset purchases.
The recovery that began in June 2009 from the worst recession since the 1930s has been led by manufacturing as exports climbed, business investment picked up and inventories were replenished.
A separate report from the Commerce Department showed construction spending in September unexpectedly rose, led by gains in homebuilding and public works projects. The 0.5 percent gain brought spending to $801.7 billion, according to the report.
Mid-term elections tomorrow will determine which party controls Congress. There is no clear consensus on which party deserves more blame for the economy’s problems, or how best to fix them, according to a Bloomberg National Poll conducted Oct. 24-26. It showed Republicans are poised to retake the U.S. House without a mandate from voters to carry out their policies.
To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
Last Updated: November 1, 2010 13:03 EDT
http://noir.bloomberg.com/apps/news?pid=20601087&sid=a6ctUD.xEcr4&pos=1
I learned a lot regarding the current situation in the market today. This is so helpful.
Posted by: Gloves Log | April 17, 2011 at 11:51 PM