Bloomberg News

Manufacturing in U.S. Probably Grew at Slower Pace in April

May 01, 2013

Manufacturing probably grew in April at the slowest pace this year, indicating the industry will contribute less to U.S. growth this quarter, economists said before a report today.

The Institute for Supply Management’s factory index dropped to 50.6 from the prior month’s 51.3, according to the median forecast in a Bloomberg survey of 84 economists. A reading of 50 is the dividing line between expansion and contraction. Other reports may show companies hired about as many workers in April as in the prior month and construction spending rose in March.

Manufacturing, which makes up about 12 percent of the economy, is cooling as the need to rebuild inventories wanes and across-the-board federal budget cuts take hold. Companies such as Tenneco Inc. (TEN:US) project it may take until the second half of the year for demand to pick up as American consumers grapple with higher payroll taxes and Europe’s economy struggles to expand.

“It’s pretty sluggish right now,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, who was the best forecaster of ISM manufacturing for the past two years, according to data compiled by Bloomberg. “It may well be that the second quarter is a stall. Not necessarily down, but not up very much.”

The Tempe, Arizona-based ISM group’s index is due at 10 a.m. New York time. Economists’ estimates in the Bloomberg survey ranged from 49 to 53.

March Report

Manufacturing expanded less than forecast in March, with the index dropping 2.9 points from 54.2 a month earlier. The difference between the March outcome and the average estimate of economists surveyed was 4.3 times larger than the poll’s standard deviation, or the average divergence between what each economist forecast and the mean. The Standard & Poor’s 500 Index dropped 0.2 percent five minutes after the data were released.

Businesses are keeping headcounts in line with demand, a report based on private payrolls may show at 8:15 a.m. A projected increase of 150,000 workers in April would follow a 158,000 advance in March, according to the Bloomberg survey median ahead of data from Roseland, New Jersey-based ADP Research Institute.

Construction spending in March climbed 0.6 percent after a 1.2 percent gain the prior month, economists surveyed by Bloomberg predicted. Projections ranged from a drop of 0.3 percent to a rise of 1.5 percent. The Commerce Department will release the report at 10 a.m. in Washington.

The economy’s inability to sustain a pickup a growth and bigger employment gains explains why Federal Reserve policy makers, who conclude their two-day meeting today, will probably reiterate the need to continue record monetary stimulus. The officials have said they’ll maintain that policy until the outlook for the labor market improves “substantially.”

Auto Manufacturing

At the same time, consumer spending led by demand for automobiles may help keep manufacturing from faltering. Cars (SAARTOTL) and light trucks sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to figures from Ward’s Automotive Group.

Tenneco, a maker of diesel-exhaust filters and mufflers, is seeing a “mixed global industry environment,” according to Chief Executive Officer Gregg Sherrill. The Lake Forest, Illinois-based company expects to benefit later this year from improving light-vehicle production in North America and overseas markets including China.

“With a continued weak global market and the significant inventory destocking taking place, we anticipate production to remain at low levels in the second quarter,” Sherrill said in an earnings conference call on April 29. “However, as inventory issues are worked through, we expect to see some volume improvements in the second half of the year.”

Regional Data

Regional reports show factories pulled back in April. The MNI Chicago (CHPMINDX) Report’s business barometer fell to 49, the weakest since September 2009, from 52.4 in March, figures showed yesterday. A reading less than 50 signals contraction.

The Federal Reserve Bank of New York’s so-called Empire State measure showed manufacturing in the region expanded in April at the slowest pace in three months, and the Federal Reserve Bank of Philadelphia’s index showed factory activity barely grew.

The 2.5 percent annualized pace of economic expansion in the first three months of the year may give way to weaker growth this quarter amid the lagged effect from a two percentage-point increase in the payroll tax at the start of 2013 and $85 billion in automatic budget cuts that began on March 1.

Growth will slow to a 1.5 percent pace from April through June, then reaccelerate to an average 2.4 percent rate in the last six months of the year, according to an April survey by Bloomberg.

                      Bloomberg Survey

================================================================
                               ADP Construct    ISM      ISM
                           Payroll Spending     Manu   Prices
                            ,000’s     MOM%    Index    Index
================================================================

Date of Release              05/01    05/01    05/01    05/01
Observation Period           April    March    April    April
----------------------------------------------------------------
Median                         150     0.6%     50.6     52.6
Average                        153     0.6%     50.7     52.4
High Forecast                  190     1.5%     53.0     55.0
Low Forecast                   110    -0.3%     49.0     48.0
Number of Participants          37       46       84       15
Previous                       158     1.2%     51.3     54.5
----------------------------------------------------------------
4CAST                          130     0.3%     51.5     ---
ABN Amro                      ---      ---      51.0     ---
Action Economics               170     0.5%     51.5     53.0
Ameriprise Financial           155     0.5%     50.0     52.0
Banca Aletti                  ---      ---      50.6     52.6
Bank of the West               150     0.2%     50.8     ---
Bank of Tokyo-Mitsubishi      ---      ---      52.5     ---
Banorte-IXE                    148     ---      50.2     ---
Barclays                      ---      0.5%     50.0     ---
Bayerische Landesbank         ---      ---      50.6     ---
BBVA                           157     0.7%     51.1     ---
BMO Capital Markets            170     0.7%     51.2     52.6
BNP Paribas                    145     0.8%     49.9     55.0
BofA Merrill Lynch             170     1.3%     50.5     ---
Capital Economics             ---      0.7%     51.0     ---
CIBC World Markets            ---      ---      50.5     ---
Citi                          ---      0.7%     50.0     53.0
ClearView Economics           ---      0.5%     51.0     48.0
Comerica                      ---      0.5%     50.5     ---
Commerzbank AG                 160     ---      50.5     ---
Credit Agricole CIB           ---      ---      50.5     ---
Credit Suisse                 ---      ---      50.5     52.0
Daiwa Securities America      ---      0.7%     51.0     53.0
DekaBank                      ---      0.1%     50.5     ---
Desjardins Group              ---      1.5%     51.5     ---
Deutsche Bank Securities      ---      0.0%     49.5     ---
Deutsche Postbank AG          ---      ---      50.8     ---
DZ Bank                        150     ---      50.8     ---
First Trust Advisors          ---      0.7%     50.7     ---
FTN Financial                 ---      ---      49.0     ---
Goldman, Sachs & Co.          ---      1.0%     50.0     ---
Hammer Partners               ---      ---      50.8     ---
Helaba                        ---      ---      50.5     ---
High Frequency Economics       150     0.7%     51.0     ---
HSBC Markets                   160    -0.3%     49.5     51.0
Hugh Johnson Advisors          135     ---      51.3     ---
IDEAglobal                     175     0.4%     52.0     51.0
IHS Global Insight            ---      1.1%     51.0     ---
Informa Global Markets         135     0.4%     50.5     ---
ING Financial Markets          150     0.5%     51.1     54.0
Intesa Sanpaolo               ---      0.2%     50.5     ---
J.P. Morgan Chase             ---      0.6%     50.5     ---
Janney Montgomery Scott        155     ---      49.5     ---
Jefferies                      155     0.7%     50.5     ---
John Hancock Financial        ---      ---      51.8     ---
Landesbank Berlin             ---      0.8%     51.0     ---
Landesbank BW                  110     ---      50.6     ---
Lloyds Tsb Bank                188     ---      51.6     ---
Maria Fiorini Ramirez         ---      ---      50.8     ---
MET Capital Advisors          ---      ---      51.8     ---
Mizuho Securities              125     0.6%     50.5     ---
Modal Asset                   ---      ---      50.3     ---
Moody’s Analytics             ---      0.7%     51.0     ---
Morgan Stanley                ---      0.2%     49.9     ---
National Bank Financial       ---      ---      51.0     ---
Natixis                        150     ---      50.5     ---
Nomura Securities              110     ---      50.9     ---
Nord/LB                        140     ---      50.5     53.0
OSK Group/DMG                 ---      ---      50.0     ---
Oxford Economics              ---      ---      51.5     ---
Pantheon Macroeconomic         175     0.5%     49.0     ---
Pierpont Securities           ---      ---      51.3     ---
PNC Bank                      ---      0.5%     51.0     ---
Prestige Economics            ---      ---      50.5     ---
Raiffeisenbank International   190     ---      50.5     ---
Raymond James                  155     0.3%     51.2     ---
RBC Capital Markets           ---      ---      50.5     ---
RBS Securities                ---      ---      50.5     ---
Regions Financial             ---      0.6%     50.9     ---
Santander                     ---      ---      50.5     ---
Scotiabank                     125     0.6%     50.5     ---
SMBC Nikko Securities          180     1.0%     53.0     ---
Societe Generale               175     1.1%     50.2     52.5
Southern Polytechnic State    ---      ---      50.1     ---
Standard Chartered Bank        140     ---      50.7     ---
Stone & McCarthy              ---      0.6%     50.0     ---
TD Securities                  160     0.8%     50.4     ---
UBS                           ---      0.5%     49.0     ---
UniCredit Research            ---      ---      51.5     ---
Union Investment               150     ---      51.0     ---
University of Maryland         150     0.7%     51.0     52.6
Wells Fargo & Co.             ---      0.4%     50.1     ---
Westpac Banking Co.            140     0.4%     51.0     ---
Wrightson ICAP                 180     0.5%     51.0     ---
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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


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Companies Mentioned

  • TEN
    (Tenneco Inc)
    • $64.08 USD
    • 0.17
    • 0.27%
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