U.S. Manufacturing Growth Slows More Than Estimated as ISM Index Hits 53.5
The Institute for Supply Management’s factory index fell to 53.5 in May from 60.4 the prior month. Photographer: Andrew Harrer/Bloomberg
June 1 (Bloomberg) -- David Resler, chief economist at Nomura Securities International Inc., talks about data from ADP Employer Services indicating U.S. companies added fewer workers than forecast in May. Resler, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses the housing market and the outlook for the economy. (Source: Bloomberg)
Manufacturing in the U.S. expanded in May at the slowest pace in more than a year, reflecting higher costs of commodities and an interruption in the supply of parts after Japan’s earthquake.
The Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, from 60.4 in April, the Tempe, Arizona-based group said today. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey.
Bonds rose and stocks slid as the report, combined with recent data on consumer spending, housing and jobs, added to concern the economy is struggling to overcome a first-quarter slowdown. Deere & Co. (DE), the world’s largest farm-equipment maker, raised its 2011 earnings forecast less than analysts estimated as disruptions from Japan and costlier inputs lowered profit.
“The extent of the slowdown in manufacturing is a concern,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who had forecast the index would drop to 55. “The question is, how sustained is it going to be. There’s plenty of reason to be cautious about growth.”
The Standard & Poor’s 500 Index slid 1.2 percent to 1,329.12 at 10:54 a.m. in New York. Benchmark 10-year note yields dropped nine basis points, or 0.09 percentage point, to 2.97 percent, the lowest since Dec. 7.
A purchasing managers’ index for China showed the slowest pace of expansion in nine months, while the equivalent measure for the euro area fell to a seven-month low.
ADP Report
Companies in the U.S. added 38,000 workers last month, less than forecast and the smallest increase since September, according to figures today from ADP Employer Services. The median estimate in the Bloomberg survey called for a 175,000 advance for May.
Planned firings dropped 4.3 percent to 37,135 last month from May 2010, according to figures from Chicago-based Challenger, Gray & Christmas Inc. Government and nonprofit agencies had the most cutbacks.
The ISM’s production index decreased to 54.0 from 63.8 in April. The new orders measure fell to 51.0, the lowest since June 2009, from 61.7, and the gauge of export orders declined to 55.0 from 62.0.
The employment gauge fell to 58.2, the lowest since October 2010, from 62.7 in the prior month.
Prices Paid
The index of prices paid slipped to 76.5 from 85.5. A measure of supplier deliveries decreased to 55.7 from 60.2.
The measure of orders waiting to be filled dropped to 50.5 from 61. The inventory index declined to 48.7 from 53.6, while a gauge of customer stockpiles fell to 39.5 from 40.5.
Manufacturing, which has been benefiting from a pickup in exports to countries like China and Brazil, began to cool in the aftermath of Japan’s earthquake in March. Industrial production stalled in April as disruptions related to Japan’s crisis led to a plunge in U.S. auto output, a Federal Reserve report showed May 17.
The Institute for Supply Management-Chicago Inc. business barometer fell to the lowest level since November 2009, the group said yesterday. Factories in the Philadelphia region grew in May at the slowest pace in seven months, a Federal Reserve report showed May 19.
Honda Motor Co., Japan’s third-largest carmaker, said its North America and China vehicle production will return to normal in August as parts suppliers recover from Japan’s record earthquake.
Honda Civic
In the U.S., production of Honda’s Civic small cars will continue to be slowed by limited supplies of some parts, the Tokyo-based company said in a statement May 26. Production of the 2012 Civic, which went on sale in April, will be at about 50 percent, it said.
“The light at the end of the tunnel is glowing brighter for us, represented by this significant improvement in our production situation,” John Mendel, executive vice president of U.S. sales, said in the statement.
Moline, Illinois-based Deere, the world’s largest maker of farm equipment, said on May 18 that earnings will be $2.65 billion in the fiscal year through October, more than the $2.5 billion forecast in February.
The manufacturer’s forecast includes a negative impact of about $300 million in sales and $70 million in operating profit because of disruptions from Japan. Global demand for agriculture and construction equipment will drive profits, the company said.
Weaker Note
The U.S. economy began 2011 on a weaker note, growing at a 1.8 percent annual rate in the first three months of this year after expanding at a 3.1 percent pace in the fourth quarter, according to Commerce Department figures.
The slowdown will “probably prove temporary,” with manufacturing data and financial markets improving, Federal Reserve Bank of New York President William C. Dudley said during a May 6 press conference.
Dudley said he expects the impact of rising commodity prices on inflation to be “transitory.”
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