Bloomberg News

U.S. Economy: Manufacturing Unexpectedly Gains on Exports

October 03, 2011

(Updates with vehicle sales in ninth paragraph.)

Oct. 3 (Bloomberg) -- Manufacturing in the U.S. unexpectedly accelerated in September, propelled by gains in exports and production.

The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said today. A level of 50 is the dividing line between growth and contraction. The median forecast of 82 economists surveyed by Bloomberg News projected a drop to 50.5.

Growing emerging economies like China and a rebound in Japan following the March earthquake and tsunami may continue to lift demand from overseas, giving a boost to companies like Emerson Electric Co. and Honda Motor Co. Manufacturing, which accounts for about 12 percent of the economy, may prevent the recovery from being cut short even as consumer spending cools.

The report points to “an economy that continues to move sideways, certainly not one that is falling off a cliff,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who forecast the ISM measure would rise to 52. “The support for new orders was coming from external demand.” David Resler is the chief economic adviser for Nomura.

Stocks fell, sending the Standard & Poor’s 500 Index to a more than one-year low, on concern over the Greek debt crisis. The S&P 500 dropped 2.9 percent to 1,099.21 at the 4 p.m. close in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.77 percent from 1.92 percent late on Sept. 30.

Survey Results

Estimates for the manufacturing index in the Bloomberg survey ranged from 45 to 52. While 50 is the midway point between expansion and contraction in the industry, a reading above 42.5 generally indicates an expansion in the overall economy, the group says.

The ISM report showed the production index climbed over 50 after contracting in August for the first time since May 2009, when the economy was in a recession. Exports accelerated and have grown for 27 consecutive months.

Toyota Motor Corp. and Honda’s return to full production in September may have boosted U.S. auto sales back near the pace reached before the Japanese earthquake in March left many U.S. automakers with shortages of parts.

September vehicle sales, released today, rose to a 13 million seasonally adjusted annual rate, exceeding median forecast of analysts surveyed by Bloomberg and the strongest since April, according to industry data. Lost output caused by Japan’s March tsunami crimped supplies of parts and finished cars.

China’s Economy

Asian economies are leading global growth. A Chinese manufacturing index advanced in September for a second month as export orders rebounded to the highest level since May. The Purchasing Managers’ Index was at 51.2, a four-month high, compared with 50.9 in August, the China Federation of Logistics and Purchasing said in a statement Oct. 1.

“I would expect us to have another good year in 2012, relative to China,” David Farr, chairman and chief executive officer of Emerson Electric, a St. Louis-based maker of electrical equipment and software, said on an Aug. 2 teleconference.

Other parts of the world are struggling. European manufacturing shrank for a second month in September, adding to signs the euro-area economy is close to recession. A factory gauge based on a survey of purchasing managers in the 17-nation euro region fell to 48.5 from 49 in August, London-based Markit Economics said today.

Orders, Backlogs

The ISM report wasn’t universally positive as a gauge of orders showed total demand shrank in September for a third consecutive month. A gauge of backlogs decreased to the lowest level since April 2009.

“Some of the components were still pretty ugly,” said Christopher Low, chief economist at FTN Financial in New York, who projected the ISM index would rise to 52. The drop in backlogs is “worrisome because they are a buffer that allow companies to continue producing when orders are weak. If that continues, it will translate into weaker production.”

Orders for capital equipment like computers and communications gear climbed in August by the most in three months, the Commerce Department’s report on durable goods showed last week.

Business Investment

“We are not convinced a pullback in corporate spending is going to occur,” David Sylvester, chief financial officer of Grand Rapids, Michigan-based office equipment-maker Steelcase Inc., said on a Sept. 22 conference call with analysts. “Many corporate balance sheets are as strong as they have ever been.”

Another report today showed construction spending in the U.S. unexpectedly climbed in August, led by the biggest jump in state and local government outlays in more than two years.

The 1.4 percent gain reversed the revised 1.4 percent drop in July, Commerce Department figures showed. The outlays were up 0.9 percent from August 2010 after adjusting for seasonal variations, the second consecutive positive year-to-year reading following almost four years of negative comparisons.

Spending by public entities jumped 3.1 percent from the prior month, the most since February 2009. Federal construction outlays fell 0.5 percent, a third consecutive drop, while state and local agencies spent 3.5 percent more.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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


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