Bloomberg News

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

February 01, 2012

(Updates with European, Chinese manufacturing in eighth , ninth paragraphs.)

Feb. 1 (Bloomberg) -- Manufacturing probably grew at a faster pace in January, a sign the industry will lead the U.S. expansion early this year, economists said before today’s report.

The Institute for Supply Management’s factory index rose to 54.5, the highest since June, from 53.1 in December, according to the median estimate of 81 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Construction spending increased 0.5 percent in December after a 1.2 percent gain, other data may show.

Factory production, led by inventory rebuilding at the end of 2011, is poised to keep expanding as the need to update equipment drives orders at companies like Caterpillar Inc. and demand for cars lifts sales at automakers. More growth in the industry will help cushion the world’s largest economy from a slowdown in Europe caused by the region’s debt crisis.

“Manufacturing is doing fairly well,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “Autos will definitely be a part of the story. The U.S. will still be exporting to other parts of the world while Europe is in a recession.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 53 to 56.

Construction Forecast

Also at 10 a.m., the Commerce Department will release data on construction spending. Economists’ forecasts in the Bloomberg survey ranged from a drop of 0.6 percent to a gain of 1.5 percent.

A report from ADP Employer Services at 8:15 a.m. may show companies added 182,000 workers to payrolls in January following a 325,000 jump the prior month.

In China, factory indexes improved in January as the world’s second-biggest economy withstood weaker exports driven by Europe’s debt crisis. The official purchasing managers’ index increased to 50.5 from 50.3 in December. The data may have been distorted by a weeklong holiday. A separate gauge from HSBC Holdings Plc and Markit Economics rose to 48.8.

European manufacturing contracted less than initially estimated in January as German output countered a slump in nations from France to Ireland. A factory gauge based on a survey of purchasing managers in the 17-nation euro region rose to 48.8 from 46.9 in December, London-based Markit Economics said today. It had previously reported a gain to 48.7. In Germany, Europe’s largest economy, output expanded for the first time since September.

Regional Reports

U.S. manufacturing accounts for about 12 percent of the economy and was at the forefront of the recovery that began in June 2009.

Regional reports reinforce the growth. New York-area factories grew in January at the fastest rate in nine months and manufacturing in the Philadelphia region expanded the most since October, figures from the Federal Reserve showed.

Caterpillar, the largest construction and mining-equipment maker, last month posted fourth-quarter earnings and forecast full-year profit that topped analysts’ estimates as demand rose for earth-moving machinery and trucks. The Peoria, Illinois- based manufacturer said it had a record $29.8 billion backlog of orders at the end of 2011.

Manufacturing shares have outperformed the market. The Standard & Poor’s Supercomposite Industrial Machinery Index, which includes Caterpillar and Deere & Co., advanced 13 percent since the end of December through yesterday, compared with a 4.4 percent increase in the broader S&P 500.

Auto Sales

Light-vehicle sales in January, set for release today, may have run at a 13.5 million seasonally adjusted annual rate, the average estimate of analysts surveyed by Bloomberg. The pace was 13.48 million at the end of 2011.

Ford Motor Co., the second-largest U.S. automaker, reported its 11th consecutive profitable quarter as sales rose and it boosted North American production by 14 percent. The Dearborn, Michigan-based company said the European market is worsening.

“We think this has the potential to be another tough year economically in Europe,” Chief Financial Officer Lewis Booth said on the “The Hays Advantage” on Bloomberg Radio on Jan. 27.

Fed officials said in their policy statement last month that they may leave interest rates low until 2014, in part because “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

The Fed also said that residential real estate, the industry that precipitated the recession, “remains depressed.” The Commerce Department’s report on construction spending may show gains in non-residential building. Housing starts dropped 4.1 percent to a 657,000 annual rate in December, capping the worst year on record for single-family home construction.

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

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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


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