Manufacturing in U.S. grew in April at slowest pace this year

Lower Inventories

The measure of orders waiting to be filled climbed to 53 from 51. The inventory index decreased to 46.5 from 49.5, while a gauge of customer stockpiles dropped to 44.5 from 47.5. A figure higher than 50 means manufacturers are building stockpiles.

The index of prices paid for materials decreased to 50 from 54.5.

The economy’s inability to maintain a faster pace of growth and bigger employment gains explain why Federal Reserve policy makers, who conclude their two-day meeting today, will probably reiterate the need to continue record monetary stimulus. The officials have said they’ll maintain that policy until the outlook for the labor market improves “substantially.”

At the same time, consumer spending led by demand for automobiles may help keep manufacturing from faltering. Cars and light trucks sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to figures from Ward’s Automotive Group.

Motor Vehicles

Tenneco, a maker of diesel-exhaust filters and mufflers, is seeing a “mixed global industry environment,” according to Chief Executive Officer Gregg Sherrill. The Lake Forest, Illinois-based company expects to benefit later this year from improving light-vehicle production in North America and overseas markets including China.

“With a continued weak global market and the significant inventory destocking taking place, we anticipate production to remain at low levels in the second quarter,” Sherrill said in an earnings conference call on April 29. “However, as inventory issues are worked through, we expect to see some volume improvements in the second half of the year.”

Regional reports signaled factories pulled back in April. The MNI Chicago Report’s business barometer fell to 49, the weakest since September 2009, from 52.4 in March, according to figures yesterday. A reading less than 50 signals contraction.

The Federal Reserve Bank of New York’s so-called Empire State measure showed manufacturing in the region expanded in April at the slowest pace in three months, and the Federal Reserve Bank of Philadelphia’s index showed factory activity barely grew.

First Quarter

The 2.5% annualized pace of economic expansion in the first three months of the year may give way to weaker growth this quarter amid the lagged effect from a two percentage-point increase in the payroll tax at the start of 2013 and $85 billion in automatic budget cuts that began on March 1.

Growth will slow to a 1.5% pace from April through June, then reaccelerate to an average 2.4% rate in the last six months of the year, according to an April survey by Bloomberg.

Bloomberg News

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