Bloomberg News

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

July 01, 2011

(Updates with China, Europe manufacturing in sixth paragraph.)

July 1 (Bloomberg) -- U.S. manufacturing probably expanded in June at a slower pace as shortages of parts and components from Japan prompted factories to limit production.

The Institute for Supply Management’s manufacturing index fell to 52 last month, the lowest level since August 2009, from 53.5 in May, according to the median estimate of 77 economists surveyed by Bloomberg News. Figures greater than 50 signal expansion. Another report may show dimmer job prospects and pricier goods weighed on consumer sentiment in June.

The slowdown in manufacturing, tied to the March earthquake and tsunami in Japan, may reverse as supplies and auto components flow from that nation’s factories to the U.S. Federal Reserve officials said last week that the “temporary” restraint on American production will abate, setting the stage for a pickup in the industry and the economy through year’s end.

“We’ve likely seen the low point in the first half of the year, which partly reflects the supply-chain disruption from Japan,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “We should see a rebound in manufacturing activity and hopefully employment, which will spur a modest pickup in consumer spending and economic growth.”

The Tempe, Arizona-based ISM will release the figures at 10 a.m. today New York time. Estimates ranged from 49 to 55.

Asia to Europe

Other figures today showed manufacturing growth is slowing from China to Europe. China’s factory index fell in June to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted.

At 9:55 a.m., the Thomson Reuters/University of Michigan’s final survey of U.S. consumer sentiment for June is projected to show households were less optimistic. Economists forecast a decline to 72 from a May reading of 74.3, according to the Bloomberg survey. The preliminary June index was 71.8.

A Commerce Department report at 10 a.m. may show construction spending cooled in May as homebuilders compete with growing inventory of previously owned properties.

Figures yesterday from the Institute for Supply Management- Chicago indicated the automobile industry improved by the end of June. The group’s business barometer climbed to 61.1 from May’s 56.6 as orders and production picked up.

Regional Figures

Economists watch the index for an early reading on the national manufacturing outlook. The Chicago group says its membership includes both factories and service providers, making the gauge a measure of overall growth.

The report was at odds with data showing manufacturing in the regions covered by the Federal Reserve Banks of Philadelphia and New York unexpectedly shrank in June.

A shortage of Japanese-made vehicles after the March natural disaster also led companies to offer smaller discounts, deterring buyers. Cars and light trucks sold at an 11.8 million annual rate, the slowest since September and down from a 13.1 million pace a month earlier, according to researcher Autodata Corp.

Fed policy makers attributed some of the slowdown in the first half of the year to “factors that are likely to be temporary.” They lowered projections for economic growth this year to 2.7 percent to 2.9 percent, down from forecasts of 3.1 percent to 3.3 percent in April.

Bernanke on Manufacturing

“The effects of the Japanese disaster on manufacturing output are likely to dissipate in coming months,” Fed Chairman Ben S. Bernanke told reporters on June 22 after the Fed’s two- day policy meeting.

Reports last month suggest a recovery may already be at hand. U.S. factory output climbed 0.4 percent in May on rising demand for machinery and computers, Fed data showed June 15. Autos and parts production fell 1.5 percent compared with a 6.5 percent plunge in April.

In Japan, industrial output increased in May by the most since 1953, led by carmakers that restored operations, government figures showed June 29.

FedEx Corp., operator of the world’s biggest cargo airline, is among companies projecting business will improve. The Memphis, Tennessee-based carrier this week forecast full-year earnings that may top analysts’ estimates as demand climbs.

“The near-term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” Frederick Smith, chairman and chief executive officer of FedEx, said on a June 22 conference call. “The industrial sector will lead growth in the U.S. and overseas in the next two years, supporting shipping demand.”

Manufacturing shares have outpaced the broader market over the past year. The Standard & Poor’s Supercomposite Machinery Index, made up of 54 companies including Caterpillar Inc., Deere & Co. and Cummins Inc., has climbed 55 percent in the year ended June 30 through yesterday, compared with a 28 percent increase for the broader S&P 500 Index.

--With assistance from Alex Tanzi in Washington. Editors: Vince Golle, Kevin Costelloe

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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