April 2 (Bloomberg) -- Manufacturing in the U.S. expanded at a faster pace than forecast in March, a sign the industry is weathering slower global growth.
The Institute for Supply Management’s factory index climbed to 53.4 last month from 52.4 in February, the Tempe, Arizona- based group’s report showed today. Readings greater than 50 signal growth. The median forecast in a Bloomberg News survey called for a gain to 53. Production accelerated to a three-month high and a gauge of factory employment climbed to the highest level since June.
Increased auto sales, sustained corporate purchases of equipment and inventory rebuilding are underpinning the industry that led the U.S. out of recession more than two years ago. At the same time, less demand from overseas customers remains a risk to factories, which account for about 12% of the economy.
“Manufacturing is going to continue to help boost economic growth,” said Omair Sharif, an economist at RBS Securities LLC in Stamford, Connecticut, who correctly forecast the gain in the index. “We’ve got a bit of a slowdown globally that is affecting exports, but for the most part there’s pretty healthy demand for U.S.-made products.”
Stocks erased losses after the figures, with the Standard & Poor’s 500 Index climbing 0.2% to 1,411.4 at 10:32 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 2.18% from 2.21% on March 30.
Growth in manufacturing is helping make up for weakness in construction spending, which unexpectedly fell 1.1 percent in February, Commerce Department figures showed. The drop was the biggest in seven months and followed a 0.8 percent retreat in January that was larger than first estimated.
Forecasts in the Bloomberg survey of 72 economists ranged from 51.7 to 54.5. The ISM index averaged 55.2 in 2011 and 57.3 a year earlier. Economist estimates ranged from 51.7 to 54.5, according to a Bloomberg survey.
The ISM’s production index rose to 58.3 from 55.3. The new orders measure decreased to 54.5 from 54.9, while the gauge of export orders decreased to 54 from 59.5.
The employment gauge climbed to 56.1 from 53.2 in the prior month.
The index of prices paid was little changed at 61 after 61.5 in February.
The measure of orders waiting to be filled was little changed at 52.5 after 52. The inventory index rose to 50 to 49.5, while a gauge of customer stockpiles decreased to 44.5, a three-month low, from 46. A figure higher than 50 means manufacturers are building stockpiles.
Elsewhere, euro-region manufacturing contracted for an eighth month in March, adding to signs the 17-country economy continued to shrink in the first quarter.
The factory gauge, based on a survey of purchasing managers, fell to 47.7 from 49 in February, London-based Markit Economics said today.
U.K. manufacturing growth unexpectedly accelerated in March to the fastest in 10 months, according to another report. The gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, rose to 52.1 from a revised 51.5 in February, Markit said.
China’s Purchasing Managers’ Index rose to a one-year high of 53.1 in March, China’s logistics federation and the National Bureau of Statistics said yesterday. The gauge has a pattern of rising each March. In contrast, a PMI from HSBC Holdings Plc and Markit Economics showed manufacturing contracting and export orders falling.
American manufacturing has been bolstered in recent months by stronger sales of automobiles. Light-vehicle sales in March, set for release tomorrow, may have run at a 14.6 million seasonally adjusted annual rate, according to the average estimate of analysts surveyed by Bloomberg. The pace was 15 million a month earlier, the strongest since February 2008, according to Ward’s Automotive Group statistics.
Some regional reports reinforce the strength of manufacturing. New York-area factories grew in March at the fastest rate since June 2010 and manufacturing in the Philadelphia region expanded the most in almost a year, figures from the Federal Reserve showed.
A government report last week showed orders for non-defense capital goods excluding aircraft -- a proxy for business investment in items such as computers, engines and communications gear --increased 1.2 percent in February.
Business spending on equipment and software climbed at a 7.5 percent pace in the final three months of 2011 after a 16.2 percent surge in the prior quarter, according to the latest Commerce Department data on gross domestic product.
While companies are investing in new equipment, a stronger labor market is giving households the means to purchase big- ticket items, benefiting companies like motor-home maker Winnebago Industries Inc.
“We’re beginning to see positive signs that the economy is improving,” Randy Potts, chief executive officer of the Forest City, Iowa-based company, said on a March 15 conference call. “Consumer confidence has been trending higher and the jobless rate is improving.”
The growth helps explain why companies like Deere & Co. are expanding. The world’s largest maker of agricultural equipment said March 1 that it would invest $70 million to expand tractor production in Waterloo, Iowa.
Federal Reserve Chairman Ben S. Bernanke said last week that while he was encouraged by the recent decline in the unemployment rate, a further reduction will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,” he said.
Recent “better news” on the U.S. economy has also included strength in manufacturing, Bernanke said. The improvement could contribute to higher consumer confidence and lead to a self-sustaining recovery, he said. “We haven’t seen that in a persuasive way yet,” Bernanke said in a speech in Arlington, Virginia.