By Timothy R. Homan and Robert Willis / Blooberg
Manufacturing in the U.S. grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion.
The Institute for Supply Management’s factory index increased to 61.4, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level since May 2004, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth. Compared with similar measures released today in Europe and Asia, the data put the U.S. at the forefront of the global manufacturing rebound.
Business investment in new equipment is prompting companies like Eaton Corp. and Deere & Co. to raise profit forecasts as growth picks up worldwide. At the same time, Federal Reserve Chairman Ben S. Bernanke today said a sustained jump in prices for commodities like oil threatens slower growth and higher inflation, a concern echoed by the purchasers group chairman.
“Manufacturing is booming,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Corporate profits continue to grow at a rapid pace, and that is providing significant fuel for gains in business investment.”
Stocks fell as crude oil prices gained. The Standard & Poor’s 500 Index declined 0.8 percent to 1,316.47 at 12:19 p.m. in New York. Treasuries decreased, pushing the yield on the benchmark 10-year note up to 3.45 percent from 3.43 percent late yesterday.
The median estimate of 77 economists surveyed by Bloomberg projected an increase to 61. Forecasts ranged from 58.7 to 63.3.
Global Rebound
A gauge of factories in the euro region rose to 59 last month, the highest since June 2000, from 57.3 in January, London-based Markit Economics said. A U.K. index of manufacturing held at 61.5 in February, the highest since the survey started in 1992, according to Markit Economics and the Chartered Institute of Purchasing and Supply.
In China, the Purchasing Managers’ Index dropped for a third month. The gauge fell to 52.2 from a January reading of 52.9, the ChinaFederation of Logistics and Purchasing said on its website. In contrast, India’s manufacturing grew at the quickest pace in three months, rising to 57.9, according to a survey by HSBC and Markit Economics.
The ISM’s order gauge climbed to the highest level since January 2004 and its employment measure reached a 38-year high, today’s report showed. Exports accelerated at the fastest pace since December 1988, and the gauge of prices paid increased to a seven-year high.
Bernanke’s View
“Sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored,” Bernanke said today testimony before the Senate Banking Committee.
Norbert Ore, chairman of the ISM’s manufacturing committee, said in a press conference that the jump in prices was the only “big negative” in what was otherwise “another great month” for American factories. The increases in commodities like steel and oil are hurting profits, which may cause some companies to pass the costs on to customers, he said.
Another report today showed construction spending fell more than forecast in January, paced by the biggest slump in commercial projects in 17 years.
The 0.7 percent drop brought the value of all projects down to a $791.8 billion annual rate, the lowest since August, Commerce Department figures showed. Outlays on private non- residential works dropped 6.9 percent, the most since January 1994, which may in part reflect the influence of winter storms.
Factories’ Influence
The manufacturing industry, which accounts for about 11 percent of the world’s largest economy, led the recovery from the recession that ended in June 2009 as businesses rebuilt stockpiles slashed during the slump that began in December 2007. Rising exports have also spurred production.
In 2010, U.S. gross domestic product increased 2.8 percent, the most in five years.
“The numbers coming out of the U.S. for GDP and industrial production are pretty solid, but we have an issue with regard to employment,” James Meil, chief economist at Eaton said on a Feb. 25 teleconference. The Cleveland-based maker of pumps used in forklifts raised its full-year forecast amid higher hydraulics sales.
Employment increased by 190,000 workers last month, the most since May 2010 and rebounding after a 36,000 gain in January, when winter storms depressed the count, according to the median forecast of economists surveyed by Bloomberg ahead of Labor Department data on March 4. The report may also show the jobless rate increased to 9.1 percent from 9 percent.
Auto Sales
Auto dealers are seeing improved demand. General Motors Co. today said U.S. sales of its four remaining brands rose 49 percent in February, topping analysts’ estimates, as discounts and new financing options lured buyers.
Factories may receive a boost this year from a government program that accelerates tax depreciation for equipment purchases. The incentive is part of an $858 billion bill signed by President Barack Obama in December that extends tax cuts for two years, continues expanded unemployment insurance benefits through 2011 and trims payroll taxes.
To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Bob Willis in Washington atbwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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