Bloomberg News

August Business Activity in U.S. Expanded at Slower Pace

August 31, 2012

Business Activity in U.S. Expanded at Slower Pace in August

Cooling factory output comes as 8.3 percent unemployment restrains consumer demand and slowing global growth reduces new businesses orders. Photographer: Tim Boyle/Bloomberg

Business activity in the U.S. expanded at a slower pace in August, indicating companies may hold the line on production until sales pick up.

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 53 this month from 53.7 in July. Figures greater than 50 signal expansion. Economists forecast the gauge would drop to 53.2, according to the median estimate in a Bloomberg survey.

Companies may lack the confidence to invest in new equipment and hire as they face a global economic slowdown and the so-called fiscal cliff threat of more than $600 billion in government spending cuts and higher taxes. Manufacturing, which helped spur the recovery, is providing less of a boost for the three-year-old expansion.

“Manufacturing looks like it’s not playing a major role in the expansion any longer but neither is it contracting,” Drew Matus, senior U.S. economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “Manufacturing is just treading water.”

Federal Reserve Chairman Ben S. Bernanke said today he would not rule out further bond purchases to boost growth and reduce unemployment, which he called a “grave concern.”

“The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” Bernanke said today in a speech to central bankers and economists at an annual forum in Jackson Hole, Wyoming.

Shares Climb

Stocks pared earlier gains as investors weighed Bernanke’s comments. The Standard & Poor’s 500 Index rose 0.3 percent to 1,403.57 at 10:18 a.m. in New York. The gauge had been up as much as 0.8 percent before the Fed chairman spoke.

Estimates for the Chicago purchasers’ index from the 58 economists surveyed ranged from 51 to 55.

The Chicago group’s production gauge rose to 57.4 from July’s reading of 54.5, today’s report showed. The gauge of new orders climbed to 54.8 from 52.9. The employment measure advanced to 57.1 from 53.3 the prior month.

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

Regional Reports

Factory activity in the New York region contracted in August for the first time in 10 months, and production in the Philadelphia-area shrank for a fourth month, those Federal Reserve reports showed this month.

“Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales,” the Fed said this week in its Beige Book business survey, which reflected information collected on or before Aug. 20.

The ISM’s monthly national factory index probably wavered near the 50 threshold of expansion and contraction in August, according to the median projection in a Bloomberg survey ahead of the Sept. 4 report. Like the Chicago survey, a reading above 50 signals expansion.

Cooling factory output comes as 8.3 percent unemployment restrains consumer demand and slowing global growth reduces new businesses orders. Household spending increased at a 1.7 percent annual rate in the second quarter, the smallest advance in a year, Commerce Department data show. Corporate spending on equipment and software rose at a 4.7 percent pace in that period, the weakest since the third quarter of 2009.

“Given our results, the prolonged weakness in the economy, the continued weakness in consumer confidence and the performance of other branded consumer businesses in developed markets, we are now moderating our expectations,” James Hagedorn, chief executive officer of Scotts Miracle-Gro Co. (SMG:US), said during an Aug. 10 earnings call. “For 2013, we’re not expecting organic growth beyond what’s driven by pricing.”

To contact the reporter on this story: Alexander Kowalski in New York at akowalski13@bloomberg.net

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


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Companies Mentioned

  • SMG
    (Scotts Miracle-Gro Co/The)
    • $54.73 USD
    • -0.27
    • -0.48%
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