Bloomberg News

Business Activity in U.S. Expanded at a Slower Pace in July

July 29, 2011

(Updates with data breakdown starting in eighth paragraph.)

July 29 (Bloomberg) -- Business activity in the U.S. expanded at a slower pace in July, a sign manufacturing may be moderating after leading the economy recovery.

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 58.8 in July, lower than forecast, from 61.1 the prior month. Figures greater than 50 signal expansion.

Manufacturers like Eaton Corp. expect sales to pick up in the second half of the year as the recovery proceeds and developing countries like China increase demand for U.S.-made goods. While easing commodity costs support production, employers are cutting back on hiring, which may temper consumer spending that accounts for 70 percent of the U.S. economy.

“Supplies out of Japan seem to be improving,” Russell Price, a senior economist at Ameriprise Financial Services Inc. in Detroit, said before the report. “Production over the next few months is likely to benefit manufacturing.”

The median forecast of 54 economists surveyed by Bloomberg News projected the measure would drop to 60. Estimates ranged from 56 to 63.3.

The economy grew less than forecast in the second quarter, after almost coming to a halt at the start of the year, as consumers retrenched, another report today showed.

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, according to figures from the Commerce Department. Household purchases, about 70 percent of the economy, rose 0.1 percent, the smallest gain in the recession.

Data Breakdown

The Chicago group’s production gauge eased to 64.3 from June’s reading of 66.9. The gauge of new orders fell to 59.4 from 61.2. The employment measure dropped to 51.5 from 58.7 the prior month, indicating less hiring.

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the national outlook. The Chicago group says its membership includes both manufacturers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

The ISM’s monthly national factory index, due Aug. 1, slid to 55 in July from 55.3, according to the median projection in a Bloomberg News survey. A reading above 50 signals expansion.

Manufactures face sluggish domestic demand after consumer spending stalled in the second quarter as employment prospects waned. At the same time, restraints from Japan’s earthquake and higher raw material costs may be wearing off, making factories’ more able to meet new demand from growing overseas economies spurred by a weaker U.S. dollar.

Fed Outlook

Federal Reserve policy makers, including Chairman Ben S. Bernanke have, nonetheless, projected that the economy will strengthen in the second half of 2011 as “factors that are likely to be temporary” subside.

Eaton, a Cleveland-based maker of hybrid transmissions for trucks, said industrial markets and the automobile industry are recovering. “All of that leads us to believe that ‘12 is going to be a solid year of economic growth, Sandy Cutler, chairman and chief executive officer, said in a July 25 teleconference with analysts.

Eaton, with business segment from electrical to fluid power and automotive, projects sales this year will top the 2008 record of $15.37 billion by 6 percent. Revenue climbed 22 percent in the first half, the company said in a statement.

--With assistance from Chris Middleton in Washington. Editor: Carlos Torres

To contact the reporters on this story: Alexander Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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