Manufacturing in the New York region expanded for a second month in March and industry managers grew more optimistic about the future, indicating the area’s factories are rebounding.
The Federal Reserve Bank of New York’s general economic index eased to 9.2 this month from 10 in February, which was the highest since May. Readings exceeding zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in the Bloomberg survey was 10. A measure of manufacturers’ outlooks climbed to the highest level in almost a year.
Growth in orders and sales this month show manufacturing is on the mend after a slowdown in the second half of 2012 as companies brought inventories more in line with demand. Sustained consumer spending and more equipment purchases by businesses will probably help fuel production gains, cushioning any setback posed by automatic government budget cuts, known as sequestration.
“Manufacturing is continuing to expand but at a modest pace simply because aggregate demand is doing the exact same thing,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Once we get the adjustment to payroll taxes and sequester behind us I think we’ll be back on track. The headwinds are starting to diminish.” Ameriprise forecast an Empire index reading of 8.
Estimates in the Bloomberg survey of 49 economists for the February data ranged from 2 to 15.
Factory executives in the New York Fed region were more optimistic about future activity. The gauge measuring the outlook six months from now advanced to 36.4, the highest since April, from 33.1. The gauge reflected increased optimism about orders, sales and capital spending.
The Empire State gauge of current new orders decreased to 8.2 in March from 13.3, which was the highest reading since May 2011. A measure of shipments fell to 7.8 from 13.1 the previous month.
The index of prices paid dropped to 25.8 from 26.3, while prices received decreased to 2.2 from 8.1.
A measure of factory employment declined to 3.2 from 8.1.
Manufacturing makes up about 12 percent of the U.S. economy and about 6 percent of New York’s.
Economists monitor the New York report and Philadelphia Fed factory readings, due March 21, for clues about the Institute for Supply Management figures on U.S. manufacturing. The national report is scheduled for release April 1.
Consumer spending gains and stronger orders for business equipment point to further strength in manufacturing. Retail sales climbed 1.1 percent in February, the most in five months, after a 0.2 percent gain in January, Commerce Department figures showed this week.
Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, advanced 7.2 percent, the biggest gain since September 2004, Commerce Department figures showed on March 6.
The pickup at factories helps explain recent gains in manufacturing employment. Industry payrolls increased by 14,000 in February, after gains of 12,000 and 13,000 in the prior two months.
Texas Instruments Inc. (TXN:US), the largest maker of analog chips, raised the lower end of its forecasts for first-quarter sales. The company has increased production in anticipation of higher demand, Vice President Ron Slaymaker said.
“In general, the stronger demand environment has continued,” Slaymaker said on a March 7 conference call. “We’re now building backlog for the first time in several quarters.”
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