Bloomberg News

Manufacturing Unexpectedly Slows as Orders Cool: Economy

March 01, 2012

Avio SpA Ariane 5 space rocket booster segment near Rome on Feb. 13, 2012. Photographer: Alessia Pierdomenico/Bloomberg

Avio SpA Ariane 5 space rocket booster segment near Rome on Feb. 13, 2012. Photographer: Alessia Pierdomenico/Bloomberg

Manufacturing in the U.S. grew less than forecast in February as orders eased, slowing the industry that has powered the two-year expansion.

The Institute for Supply Management’s factory index fell to 52.4 from 54.1 in January, the Tempe, Arizona-based group said today. Readings above 50 signal growth. Jobless claims fell to an almost four-year low last week, and household purchases adjusted for prices were little changed for a third straight month in January, other reports showed.

“The economy is expanding, but the data are choppy and somewhat inconsistent,” said John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey. For manufacturing, “you probably have to look at the glass as a little more than half full. Consumers have lingering concerns about job security and the durability of the expansion and are hesitant to grow their spending.”

Higher fuel prices may be discouraging Americans from spending more on other goods and services even as improvement in the labor market spurs wage gains. At the same time, faster auto sales and increased exports are helping to underpin manufacturing, which accounts for about 12 percent of the world’s largest economy.

Stocks rose, sending the Standard & Poor’s 500 Index (SPX) to the highest level since 2008, as financial shares rallied. The S&P 500 advanced 0.6 percent to 1,374.09 at the close in New York. Stocks briefly pared gains in the final hour of trading as oil jumped after reports of a pipeline explosion in Saudi Arabia.

Spending on Services

Personal spending after adjusting for inflation failed to grow in the three months ended in January, the Commerce Department said. The latest figure reflected a 0.1 percent drop in spending on services such as utilities that may reflect unseasonably warm winter weather. Purchases of durable goods climbed 0.9 percent.

The labor market showed more signs of improvement. First- time applications for jobless benefits fell 2,000 last week to 351,000, matching the lowest level since March 2008, the Labor Department said.

Consumer confidence held close to an almost four-year high last week as pessimism about the performance of the economy eased. The Bloomberg Consumer Comfort Index was minus 38.8 in the period ended Feb. 26 after reaching minus 38.4, the highest level since April 2008, in the previous period. It marked the third straight week above minus 40, the level associated with recessions and their aftermath. The margin of error for the headline reading is 3 percentage points.

The median forecast of economists surveyed by Bloomberg News called for a gain in the manufacturing index to 54.5. Estimates of the 79 economists surveyed ranged from 52 to 56.

Regional Data

The ISM report was at odds with regional data for the month showing the factory expansion accelerated. Manufacturing in the Philadelphia region grew in February at the fastest rate in four months. Factories in the New York area expanded the most since June 2010, while the Institute for Supply Management-Chicago said yesterday that its business activity gauge rose to the highest level in 10 months.

Elsewhere, euro-area manufacturing shrank for a seventh month. A factory gauge based on a survey of purchasing managers in the 17-nation region increased to 49 in February from 48.8 a month earlier, below the 50 line that divides expansion from contraction, London-based Markit Economics said today.

The European manufacturing survey contrasts with reports in China, India and the U.K. showing continued expansion in factory output.

Data from China today showed that a purchasing managers’ index rose for a third month to 51 in February from 50.5 in January. In India, a PMI released by HSBC Holdings Plc and Markit was close to an eight-month high.

Orders, Exports

The ISM’s U.S. figures showed the production index was little changed. The group’s new orders measure eased to 54.9 from 57.6, while the gauge of export orders climbed.

Manufacturing, which sparked the early stages of the expansion as growing overseas economies propelled exports, has recovered after a lull brought on by Japan’s March 2011 earthquake.

“For many products, demand has been above our ability to produce,” Mike DeWalt, director of investor relations at Caterpillar Inc. (CAT), said on a Jan. 26 conference call with analysts. “We have invested in Caterpillar factories in the United States and around the world to increase production.”

Auto Sales

Vehicle demand is helping drive production. Cars and light trucks sold at a 15.1 million annual rate in February, the fastest in four years, according to Autodata Corp.

General Motors Co. reported a surprise U.S. sales gain, and Ford Motor Co., Chrysler Group LLC and Nissan Motor Co. also topped analysts’ estimates, figures today show.

“Our dealers tell us fuel prices weighed heavily on the purchase decisions of our customers in February,” Ken Czubay, Ford’s U.S. sales chief, said today in a conference call with analysts and reporters.

The price of a gallon of regular unleaded gasoline climbed to $3.74 as of Feb. 29, the highest since June of last year, after reaching a 10-month low of $3.21 on Dec. 20, according to AAA, the nation’s largest automobile association.

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

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


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