Bloomberg News

Philadelphia-Area Manufacturing Expands Less Than Forecast

November 17, 2011

(Updates with markets in sixth paragraph.)

Nov. 17 (Bloomberg) -- Manufacturing in the Philadelphia region expanded less than forecast in November as orders and sales cooled.

The Federal Reserve Bank of Philadelphia’s general economic index decreased to 3.6 from 8.7 last month. Economists forecast the gauge would be little changed at 9, according to the median estimate in a Bloomberg News survey. Readings greater than zero indicate expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The risk of recession in Europe and slowing growth in Asia signal fewer orders for U.S. manufacturers at the same time American companies hold the line on inventories. The figures help explain why Federal Reserve Chairman Ben S. Bernanke on Nov. 2 described the recovery as “frustratingly slow” and indicated more stimulus was “on the table” should the economy falter.

“We’ve had something of a leg down in manufacturing,” Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, said before the report. “We’re trying to find equilibrium and it’s going to be difficult with all the global headwinds.”

Economists’ estimates in the Bloomberg survey ranged from 15 to minus 1.

Stocks held losses after the report on concern about the European debt crisis. The Standard & Poor’s 500 Index declined 0.1 percent to 1,236.23 at 10:41 a.m. in New York.

New York

New York-area manufacturing unexpectedly expanded in November for the first time in six months, according to the Federal Reserve Bank of New York’s so-called Empire State Index released earlier this week.

Economists monitor Philadelphia and New York Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing during the month. The ISM will release its report on Dec. 1.

Today’s report showed the Philadelphia Fed’s new orders measure dropped to 1.3 from 7.8. The shipments gauge decreased to 7.3 from 13.6 last month.

Another Fed report yesterday showed U.S. factory production rose 0.5 percent in October, the most since July. Total industrial production, which also includes mining and utilities, climbed 0.7 percent.

The Philadelphia Fed’s index of prices paid rose to 22.8 from 20 the prior month, while the measure of prices received climbed to 2.6 from minus 2.5.

Employment, Hours

The employment index in the Philadelphia Fed report increased to 12, the highest since May, from 1.4 last month. A measure of the average workweek jumped to 11 from 3.1 in October.

A gauge of activity six months from now climbed to the highest level since March, signaling manufacturers were more upbeat about their prospects, as measures of orders, sales and employment picked up.

Individual measures in the index don’t contribute to the headline reading, so some economists consider it a gauge of sentiment among manufacturers.

Latrobe, Pennsylvania-based Kennametal Inc., a supplier of cutting tools to Caterpillar Inc. and other manufacturers, “continued to experience growth in customer demand,” in the last quarter, President and Chief Executive Officer Carlos Cardoso said during an Oct. 27 conference call. “This supports our continued expectations of a manufacturing-led recovery, at least in the United States.”

Retail Sales

Stronger consumer spending could support U.S. manufacturing. Retail sales rose more than projected in October as Americans bought more electronics and demand for automobiles improved, Commerce Department figures showed this week.

Increased foreign demand for U.S.-made goods has also kept assembly lines running as a cheaper dollar makes American goods more competitive overseas. IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against those of six major trading partners including the euro, yen and pound, has dropped 12 percent from June 7, 2010, through this week. Exports rose to a record $180 billion in September, government data showed last week.

--With reporting from Chris Middleton in Washington. Editor: Vince Golle

Company news: KMT US <Equity> CN

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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