Bloomberg News

Business Activity in U.S. Unexpectedly Grew at Slower Pace

May 31, 2012

Business activity in the U.S. expanded in May at the slowest pace in more than two years as orders and production cooled.

The Institute for Supply Management-Chicago Inc. said today its barometer decreased to 52.7, the lowest since September 2009, from 56.2 in April. Readings greater than 50 signal growth. Economists projected the purchasing managers’ gauge would rise to 56.8, according to the median of 55 estimates in a Bloomberg News survey.

While demand for automobiles continues to fuel factory output, the debt crisis in Europe and a slowdown in China may cause some businesses to cut back on spending and hiring. Stocks fell, sending the Standard & Poor’s 500 Index toward its biggest monthly decline since September.

“When you’re in a fragile economy and the world around you is showing severe stress fractures, it’s going to impact us,” said Tom Porcelli, chief U.S. economist for RBC Capital Markets in New York, the top-ranked forecaster for the Chicago index. “You’re seeing those headwinds flow fully through the U.S. economy.”

Projections in the Bloomberg survey ranged from 53.7 to 60.7.

Economists watch the Chicago index and regional manufacturing reports for an early reading on the national outlook. The group says its membership includes both manufacturers and service providers with operations in the U.S. and abroad, making the gauge a measure of total growth.

Growth Slows

Other reports today showed the economy grew more slowly in the first quarter than previously estimated, more Americans than projected filed claims for jobless benefits last week, consumer sentiment climbed to a four-week high and companies added fewer workers than forecast in May.

Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, according to revised data Commerce Department. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.

First-time applications for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26 from a revised 373,000 the prior week, the Labor Department reported. They exceeded the median estimate of 370,000 in a Bloomberg News survey of economists.

Payroll Estimate

Figures from Roseland, New Jersey-based ADP Employer Services showed payrolls increased by 133,000 this month following a revised 113,000 gain in April. The median estimate of 39 economists surveyed by Bloomberg called for a May advance of 150,000.

The Bloomberg Consumer Comfort Index rose to minus 39.3 in the week ended May 27 from minus 42 in the prior period. The reading was little changed from this year’s average of minus 38.9. All three of its components -- the economy, personal finances and buying plans -- advanced.

The S&P 500 Index dropped 0.7 percent to 1,303.57 at 10:08 a.m. in New York.

The Institute for Supply Management’s national factory index, which will be reported tomorrow, probably slid to 53.8 in May from 54.8 the prior month, according to the median projection in a Bloomberg survey. As in the Chicago survey, a reading greater than 50 signals expansion.

Production Stagnates

The Chicago group’s production gauge fell to 50, signaling neither growth nor expansion, from 57.1. The index of new orders dropped to 52.9, also the lowest since September 2009, from 57.4. The employment measure fell to 57 from 58.7 the prior month.

Caterpillar Inc. (CAT:US), the largest maker of construction and mining equipment, said this month that global machinery retail sales rose 12 percent in the three months through April compared with the same period a year earlier.

Gains around the world offset a 13 percent drop in machine retail sales in Latin America, the Peoria, Illinois-based company said in a securities filing today. Machine sales increased 32 percent in North America, 5 percent in the Asia- Pacific region and 14 percent in Europe, Africa and the Middle East.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

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


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