Bloomberg News

Manufacturing in U.S. Probably Expanded in May at Slower Pace

June 01, 2011

June 1 (Bloomberg) -- U.S. manufacturing probably expanded in May at the slowest pace in seven months, partly a reflection of the supply interruptions stemming from the earthquake in Japan.

The Institute for Supply Management’s manufacturing index fell to 57.2 last month from 60.4 in April, according to the median estimate of 80 economists surveyed by Bloomberg News. Figures greater than 50 signal expansion. Other reports may show construction spending rose in April and companies added to payrolls last month.

The slowdown in manufacturing, the industry at the forefront of the economic recovery, may prove temporary as Japan’s factories resume output of components used by American producers. Companies like Deere & Co., which raised its 2011 earnings forecast, are also benefiting from global demand that may keep fueling growth later this year.

“The steamy pace of manufacturing is slowing down, but we know it’s going to get better,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “The Japanese earthquake and tsunami caused disruptions in supply lines, which have reduced output substantially in the second quarter.”

The Tempe, Arizona-based group’s report is due at 10 a.m. today New York time. Estimates ranged from 53 to 60.

The Commerce Department is projected to report a 0.3 percent rise in April construction spending after a 1.4 percent increase a month earlier, according to the median forecast in the Bloomberg survey.

ADP Employer Services

ADP Employer Services will release May employment data at 8:15 a.m. Companies added 175,000 workers to their payrolls last month after a 179,000 April gain, the Bloomberg survey median showed.

U.S. manufacturing, which has been benefiting from a pickup in exports to countries like China and Brazil, began to cool in the aftermath of Japan’s earthquake in March and higher raw material costs. Industrial production stalled in April as disruptions related to Japan’s crisis led to a plunge in U.S. auto output, a Federal Reserve report showed May 17.

Honda Motor Co., Japan’s third-largest carmaker, said its North American and China vehicle production will return to normal in August as parts suppliers recover from Japan’s record earthquake.

Civic Production

In the U.S., production of Honda’s Civic small cars will continue to be slowed by limited supplies of some parts, the Tokyo-based company said in a statement May 26. Output of the 2012 models, which went on sale in April, will be at about 50 percent, it said.

“The light at the end of the tunnel is glowing brighter for us, represented by this significant improvement in our production situation,” John Mendel, executive vice president of U.S. sales, said in the statement.

Deere, based in Moline, Illinois, said on May 18 that earnings will be $2.65 billion in the fiscal year through October, more than the $2.5 billion forecast in February.

The manufacturer’s forecast includes a negative impact of about $300 million in sales and $70 million in operating profit because of disruptions from Japan. Global demand for agriculture and construction equipment will drive profits, the company said.

Share Prices

The recent slowdown in manufacturing has been reflected in share prices. The Standard & Poor’s Supercomposite Machinery Index, made up of 53 companies including Caterpillar Inc., Deere and Cummins Inc., has dropped 6 percent since April 29, compared with a 1.4 percent decrease for the broader S&P 500 Index.

The U.S. economy began 2011 on a weaker note, growing at a 1.8 percent annual rate in the first three months of this year after expanding at a 3.1 percent pace in the fourth quarter, according to Commerce Department figures.

The slowdown will “probably prove temporary,” with manufacturing data and financial markets improving, Federal Reserve Bank of New York President William C. Dudley said during a May 6 press conference.

Dudley said he expects the impact of rising commodity prices on inflation to be “transitory.”

--With assistance from Alex Tanzi in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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


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