Business activity in the U.S. expanded in August for a fourth consecutive month, a sign that manufacturing is strong enough to support recovery in the world’s biggest economy.
The MNI Chicago Report (CHPMINDX) business barometer rose to 53, matching forecasts, after a reading of 52.3 in July. Numbers greater than 50 signal expansion. Estimates in a Bloomberg survey of 53 economists ranged from 51 to 55. The index averaged 54.6 in 2012 and 62.8 in 2011.
Manufacturing, which makes up about 12 percent of the economy, is regaining its strength after slipping earlier this year as demand for automobiles, construction materials and appliances keeps assembly lines running. Higher business investment and improved overseas markets are needed to help sustain gains and support economic growth in the second half of the year.
Manufacturing “has improved over the last couple of months and remains at a decent pace,” Jacob Oubina, a senior economist at RBC Capital Markets LLC, said before the report. Factories are “ stabilizing at an OK level where they’re going to be a decent contributor to economic growth in the second half of the year.”
Another report today showed consumer spending rose less than forecast in July as income growth slowed, indicating further job gains are needed to sustain household purchases.
Household purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes climbed 0.1 percent following a 0.3 percent advance in June.
The Chicago group’s gauge of new orders rose to 57.2 in August, the highest reading since May, from 53.9 in July. A measure of employment fell to 54.9 from 56.6. The production index dropped to 53 from 53.6 last month, the lowest reading since April, according to today’s report.
Economists monitor the Chicago index and other regional reports for an early reading on the national manufacturing outlook. The Chicago group includes goods producers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.
The Federal Reserve Bank of New York’s general economic index showed manufacturing in the region expanded at a slower-than-expected pace in August as companies suffered weak demand. Factory activity gauged by the Federal Reserve Bank of Philadelphia’s index increased for a third straight month.
Those figures contrast with a report earlier this week that showed orders for durable goods dropped in July by the most in almost a year. Demand for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, fell 3.3 percent in July, the biggest decrease in five months. Vehicle demand provided a bright spot in the report, with orders for automobiles and parts rising 0.5 percent after a 0.2 percent gain in June.
Americans’ appetite for vehicles has helped support manufacturing, giving automakers such as Ford Motor Co. (F:US) more pricing power when combined with new-car features, Treasurer Neil Schloss said during an analyst teleconference. Adjusted net income at the Dearborn, Michigan-based carmaker climbed 54 percent in the second quarter to top an average analyst estimate.
“Wherever we see an opportunity to do that competitively or based on maybe a very high demand relative to supply, we’ll take advantage of that and try to get every dollar of revenue out that we can,” he said.
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