Manufacturing cools in U.S. as government cuts loom

Raising Forecasts

Economists at JPMorgan Chase & Co. in New York today raised their tracking estimate for first-quarter growth to a 3.8 percent annualized rate from 2.7 percent, reflecting the improving outlook for consumer spending and homebuilding. The world’s largest economy will grow at a 1.8 percent pace this quarter as the government cutbacks set in, according to the median forecast of economists surveyed by Bloomberg in March.

The median forecast of 69 economists surveyed by Bloomberg projected the U.S. ISM’s factory index would drop to 54. Estimates ranged from LeBas’s 51.6 to 55. The 2.9-point decline in the factory gauge was the biggest since July 2011.

The purchasers group’s orders gauge dropped 6.4 points to 51.4, the biggest retreat since June, and the production index decreased to a six-month low, today’s report showed.

On the more positive side, the group’s employment measure climbed to the highest level since June, and its export gauge showed the strongest reading in almost a year.

‘Slight Breather’

Manufacturers are taking a “slight breather,” reflecting caution about domestic demand, Bradley Holcomb, the ISM’s factory survey chairman, said in a conference call today.

While most member comments were positive, there was some concern about government policy and the effects that sequestration, or the automatic spending cuts triggered last month when lawmakers in Washington failed to reached compromise on reducing the debt, would have on the economy, said Holcomb.

Sequestration trims 5 percent from domestic agencies and 8 percent from the Defense Department this fiscal year.

Auto sales, which are projected to climb this year to the highest level since 2007, and housing have been a boom for manufacturers. Consumer spending climbed in February by the most in five months, even in the face of a 2 percentage-point increase in the payroll tax, according to Commerce Department figures issued last week. Gains in employment are among reasons for the pickup.

Manufacturers projecting a better outlook include Texas Instruments Inc. The largest maker of analog chips raised the lower end of its forecasts for first-quarter sales and profit.

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