Manufacturing in U.S. Expanded at Slower Pace in July (Update3)
By Shobhana Chandra
Aug. 2 (Bloomberg) -- Manufacturing in the U.S. expanded in July at the slowest pace this year, signaling the world’s largest economy is cooling at the start of the second half.
The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month from 56.2 in June. A reading greater than 50 points to expansion, and the median forecast of economists surveyed by Bloomberg News was 54.5.
A measure of new orders fell to the lowest since June 2009, indicating production may ease to a more sustainable pace as the surge in inventory rebuilding that sparked a manufacturing-led economic recovery winds down. Companies like Caterpillar Inc. are benefiting more from overseas demand as limited job growth in the U.S. restrains consumer spending.
“There’s been some easing in momentum, although demand is still growing,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who accurately forecast the ISM reading. The new orders gauge is “signaling a slower pace of growth, though it still suggests expansion in the economy.”
Federal Reserve Chairman Ben S. Bernanke said in a speech today that Americans will probably ratchet up their spending in coming months.
“Rising demand from households and businesses should help sustain growth,” and consumer spending “seems likely to pick up in coming quarters from its recent modest pace,” Bernanke told lawmakers in Charleston, South Carolina.
Estimates in the Bloomberg survey of 74 economists ranged from 52.5 to 56. Since April’s reading of 60.4, the highest since June 2004, the index has declined.
Stocks Advance
Stocks maintained gains after the report, with the Standard & Poor’s 500 Index increasing 1.8 percent to 1,121.77 at 10:50 a.m. in New York. The 10-year Treasury note fell, pushing up the yield 5 basis points, or 0.05 percentage point, to 2.95 percent.
A separate report from the Commerce Department showed construction spending unexpectedly rose in June, boosted by a gain in government programs that made up for declines in private residential and commercial projects.
The 0.1 percent increase in outlays followed a revised 1 percent drop in May that was larger than previously estimated, figures from the Commerce Department showed today.
In Europe, manufacturing expanded in July by the most in three months. A gauge in the 16-nation euro region increased to 56.7 from 55.6 in the previous month, London-based Markit Economics said today.
Chinese Manufacturing
China’s factory data were the weakest in more than a year as the government clamped down on property speculation and investment in energy-intensive plants.
A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June. A separate, government-backed PMI dropped to 51.2 from 52.1, the Federation of Logistics and Purchasing reported yesterday. Fifty is the dividing line between expansion and contraction.
The ISM’s U.S. new orders measure dropped to 53.5 from 58.5, while the production index decreased to 57 from 61.4.
The employment gauge increased to 58.6 from 57.8 in June and the index of export orders rose to 56.5 from 56 the prior month.
The measure of orders waiting to be filled declined to 54.4 from 57, and the index of prices paid rose to 57.5 from 57.
The inventory index increased to 50.2 from 45.8 in June. A figure higher than 50 means manufacturers are increased stockpiles.
Recovery From Recession
The manufacturing industry, which accounts for about 11 percent of the economy, has been driving the U.S. recovery from the worst recession since the 1930s as rising sales in emerging markets led businesses to ramp up spending on equipment and to replenish stockpiles.
Caterpillar, the world’s largest maker of construction equipment, this month raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.
“You’ve got strong growth in India and China that provides demand for commodities,” Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said in an interview on July 22. “Most of the mining is happening in the developing parts of the world.”
Further gains in manufacturing require a pickup in consumer spending, which accounts for about 70 percent of the economy. A Commerce Department report last week showed second-quarter gross domestic product grew at a 2.4 percent annual pace, less than the median forecast of economists surveyed by Bloomberg, as Americans limited purchases.
White House
“This is solid growth,” Christina Romer, chairwoman of President Obama’s Council of Economic Advisers, said in a July 30 interview with Bloomberg Television. “It is not strong enough.”
Corporate spending on equipment and software, which had the biggest increase since 1997, contributed 1.4 percentage points to economic growth last quarter and the change in inventories added about 1.1 points, according to the GDP report.
More than 7 out of 10 Americans say the economy is still mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll. The U.S. lost 8.4 million jobs during the slump that began in December 2007.
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