Bloomberg News

U.S. Manufacturing Probably Cooled as Capital Spending Waned

December 03, 2012

Manufacturing in the U.S. probably cooled in November as business demand slowed and disruptions from superstorm Sandy limited production, according to economists surveyed before a report today.

The Institute for Supply Management’s factory index fell to 51.5 from 51.7 in October, according to the median estimate of 75 economists surveyed by Bloomberg. A reading of 50 marks the dividing line between expansion and contraction. Other figures today may show construction spending increased in October.

Less corporate spending on equipment as lawmakers debate the nation’s budget, weaker orders from overseas and disturbances related to the biggest Atlantic storm ever to hit the U.S. are converging to slow manufacturing. A pickup in home construction as well as rebuilding in the wake of Sandy may offer the economy a lift as support from factories wanes.

“There is uncertainty from the fiscal cliff, Europe is still going down, and then you’ve got Sandy,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Housing is going to be a solid aspect for several years to come.”

The Tempe, Arizona-based ISM will release the report at 10 a.m. New York time. Estimates ranged from 49 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 in 2010.

Other reports today showed euro-area manufacturing kept contracting in November while factory output rose in China and Russia, underscoring the divergence of the global economic recovery.

Europe, China

Manufacturing output in the 17-nation euro area shrank for a 16th month, with a gauge of manufacturing rising to 46.2 from 45.4 in October. In China the Purchasing Managers’ Index climbed 50.6 and in Russia it expanded for a 14th month.

Recent U.S. regional reports show manufacturing, which accounts for about 12 percent of the U.S. economy, weakened last month. Factory activity in the New York area contracted in November for the fourth consecutive month as Sandy knocked out electrical power and limited activity, disrupting about 70 percent of businesses that were surveyed by the Federal Reserve. Output in the Philadelphia-area shrank for the sixth time in seven months.

Seven of 12 Fed districts reported “either slowing or outright contraction in manufacturing,” the central bank said last week in its Beige Book business survey, which reflected information collected before Nov. 14. The Cleveland, Richmond and St. Louis areas said business was positive.

Fiscal Cliff

Apart from the storm’s impact, uncertainty surrounding the so-called fiscal cliff of about $607 billion in automatic tax increases and spending cuts slated for 2013 if lawmakers fail to act is prompting businesses to curb investment. Five of 12 Fed districts expressed concern about next year’s outlook, partly due to the lack of clarity about the budget, the report said.

Business spending on equipment and software fell at a 2.7 percent annual rate in the third quarter, the first drop since mid-2009.

At the same time, there’s a risk overseas demand for U.S- made goods will slow further. The euro-area economy hasn’t expanded for a year, and China’s economic growth has slowed for seven straight quarters.

“Business levels are not bad,” Jerald Fishman, chief executive officer at chipmaker Analog Devices Inc. (ADI:US), said on a Nov. 27 call with analysts. Still, “there’s so much uncertainty out there in Europe and the U.S.”

‘Standing Still’

Fishman said that because of a lack of clarity on government tax policies, “people are just standing still and that impacts their capital spending budget.”

A healthier housing market could pick up some of the slack by bolstering demand for more durable goods, such as furniture, refrigerators, and building products. Economists project construction spending rose 0.5 percent in October, the sixth gain in seven months, according to survey median before the 10 a.m. report from the Commerce Department.

Investors remain upbeat about the industry. The Standard & Poor’s Supercomposite Homebuilding Index has surged 76.9 percent this year, outpacing a 12.6 percent gain for the broader S&P 500 gauge.

                    Bloomberg Survey

======================================================
                               ISM      ISM  Construct
                              Manu   Prices  Spending
                             Index    Index     MOM%
======================================================

Date of Release              12/03    12/03    12/03
Observation Period            Nov.     Nov.     Oct.
------------------------------------------------------
Median                        51.5     53.5     0.5%
Average                       51.4     53.0     0.5%
High Forecast                 53.5     58.0     1.2%
Low Forecast                  49.0     45.5    -0.5%
Number of Participants          75       17       38
Previous                      51.7     55.0     0.6%
------------------------------------------------------
4CAST                         51.5     ---      0.2%
ABN Amro                      52.0     ---      ---
Action Economics              51.5     54.5     0.2%
Aletti Gestielle              51.1     ---      ---
Ameriprise Financial          51.9     56.0     0.5%
Banca Aletti                  51.2     50.5     ---
Bank of the West              51.4     54.0     0.2%
Bantleon Bank AG              51.6     ---      ---
Barclays                      51.0     ---      0.5%
Bayerische Landesbank         52.4     ---      ---
BMO Capital Markets           51.0     54.0     0.3%
BNP Paribas                   52.2     53.0     0.4%
BofA Merrill Lynch            50.5     ---      0.5%
Briefing.com                  50.0     ---      0.3%
Capital Economics             52.0     ---      0.6%
CIBC World Markets            51.9     ---      ---
Citi                          51.0     52.0     0.3%
ClearView Economics           52.0     53.0     0.1%
Commerzbank AG                51.0     ---      ---
Credit Agricole CIB           52.0     ---      ---
Credit Suisse                 51.0     53.5     ---
Danske Bank A/S               51.8     45.5     ---
DekaBank                      51.5     ---      0.8%
Desjardins Group              51.5     ---      0.0%
Deutsche Bank Securities      50.0     ---      0.3%
Deutsche Postbank AG          51.5     ---      ---
Exane                         51.8     ---      ---
First Trust Advisors          51.6     ---      0.7%
FTN Financial                 51.4     ---      ---
Hammer Partners SA            51.2     53.6     ---
Helaba                        51.0     ---      ---
HSBC Markets                  51.6     50.0     ---
Hugh Johnson Advisors         50.6     ---      ---
IDEAglobal                    50.0     52.0     0.5%
IHS Global Insight            52.0     ---      0.6%
Informa Global Markets        53.0     58.0     0.5%
ING Financial Markets         52.2     53.0     0.5%
Insight Economics             52.0     ---      0.5%
Intesa Sanpaulo               51.2     ---      0.4%
Janney Montgomery Scott       50.3     ---      ---
Jefferies & Co.               49.0     ---      0.6%
John Hancock Financial        ---      ---      0.5%
Landesbank Berlin             50.2     ---      1.2%
Landesbank BW                 52.5     ---      ---
Lloyds Bank                   51.2     ---      ---
Maria Fiorini Ramirez         51.5     ---      ---
MET Capital Advisors          51.0     ---      ---
Modal Asset                   51.5     ---      ---
Moody’s Analytics             52.1     ---      0.9%
Morgan Stanley & Co.          53.5     ---      0.4%
National Bank Financial       51.0     ---      ---
Natixis                       51.0     ---      ---
Nomura Securities             51.3     ---      ---
Nord/LB                       51.0     54.0     ---
OSK Group/DMG                 51.7     ---      ---
Oxford Economics              50.7     ---      0.9%
Pierpont Securities           52.0     ---      ---
PNC Bank                      52.5     ---     -0.5%
Raiffeisenbank International  51.0     ---      ---
RBC Capital Markets           50.5     ---      ---
Regions Financial             52.0     ---      0.6%
Renaissance Macro Research    50.0     ---      ---
Santander                     51.3     ---      ---
Scotiabank                    51.5     ---      0.4%
SMBC Nikko Securities         51.5     ---      0.4%
Societe Generale              52.3     ---      ---
Southern Polytechnic State    50.5     ---      ---
Standard Chartered            51.0     ---      ---
Stone & McCarthy              51.0     ---      0.5%
TD Securities                 50.8     ---      ---
UBS                           52.5     ---      0.4%
UniCredit Research            51.5     ---      ---
University of Maryland        51.3     54.7     0.3%
Wells Fargo & Co.             51.7     ---      0.4%
Westpac Banking Co.           49.9     ---      0.8%
Wrightson ICAP                52.0     ---      0.4%
=====================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

A worker welds an attachment for a clock tower at the Verdin Corp. production facility in Cincinnatti, Ohio, U.S., on Friday, Nov. 11, 2012. Photographer: Ty Wright/Bloomberg Nov. 30 (Bloomberg) -- Kathleen Bostjancic, director of macro analysis at the Conference Board, says the U.S. economy "is still quite fragile and soft." Bostjancic talks with Bloomberg's Tom Keene and Michael McKee on Bloomberg Radio's "Bloomberg Surveillance." (Source: Bloomberg)

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