Bloomberg News

U.S. Manufacturing Probably Grew at Slowest in Two Years

October 03, 2011

(Updates with European manufacturing measure in sixth paragraph.)

Oct. 3 (Bloomberg) -- Manufacturing in the U.S. probably expanded in September at the slowest pace in more than two years as the economic recovery showed signs of stalling, economists said before a report today.

The Institute for Supply Management’s factory index was little changed at 50.3 last month from 50.6 in August, according to the median forecast in a Bloomberg News survey. A level of 50 is the dividing line between growth and contraction. Construction spending fell in August, another report may show.

American producers faced with slower U.S. demand are banking on sustained sales to emerging economies like China that have also shown signs of cooling. In an effort to provide a boost for the recovery as concerns of a European sovereign debt default roil financial markets, the Federal Reserve last month announced another round of unconventional policy.

“Manufacturing is continuing to grow, though certainly at a much slower pace than earlier in the year,” said Eric Green, chief market economist at TD Securities Inc. in New York. “Capital investment continues to grow at a slower pace. Ultimately activity will be driven by how events unfold in Europe.”

The Tempe, Arizona-based ISM’s survey results will be released at 10 a.m. New York time. Estimates from 67 economists ranged from 45 to 52. While 50 is the midway point between expansion and contraction in the industry, a reading greater than 42.5 generally indicates an expansion in the overall economy, the group says.

European Manufacturing

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.

Recently released surveys provided a mixed picture of U.S. manufacturing. Business at New York-region factories shrank for a fourth straight month in September and manufacturing in the Philadelphia area contracted for a third time in four months, figures from the Fed showed. The Institute for Supply Management-Chicago Inc. last week said its U.S. business barometer rose in September to the highest level in three months.

“Significant headwinds continue to challenge the broader recovery from the 2008 financial crisis,” David Sylvester, chief financial officer at office equipment-maker Steelcase Inc., said in a Sept. 22 conference call with analysts. “We could feel these pressures again if companies choose to behave conservatively and pull back on spending because of the uncertain landscape.”

Stocks Declined

Stocks had their biggest quarterly drop since 2008 from July through September on concerns that Europe’s debt crisis will trigger a global recession. The Standard & Poor’s 500 Index has declined for five straight months, the longest since the same period ended March 2008.

After reaching an almost seven-year high of 61.4 in February, the ISM factory gauge has dropped in five of six subsequent months. Nonetheless, gains in business investment and exports are preventing a sharper setback.

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

“We are not convinced a pullback in corporate spending is going to occur,” said Sylvester of Grand Rapids, Michigan-based Steelcase. “Many corporate balance sheets are as strong as they have ever been.”

Fed on Economy

“There are significant downside risks to the economic outlook, including strains in global financial markets,” the Fed’s policy-setting committee said on Sept. 21. Economic growth “remains slow” even as “business investment in equipment and software continues to expand.”

At the same time, the housing market that triggered the 2008-2009 recession is in the doldrums. Construction spending in August fell 0.2 percent after a 1.3 percent decline the prior month, economists forecast the Commerce Department will report at 10 a.m.

--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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