Manufacturing expanded in September at a faster pace than forecast, indicating U.S. factories will provide a bigger boost to the expansion.
The Institute for Supply Management’s index unexpectedly rose to 56.2, the strongest since April 2011, from 55.7 a month earlier, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was 55.
Demand for motor vehicles and housing-related goods is bolstering orders at factories, helping strengthen manufacturing and adding fuel to the economy. A bigger increase in production would come from further improvement in the labor market that propels consumer spending, along with improving global markets.
Manufacturing is “poised for improvement -- inventories are relatively lean, you’re seeing gains in employment,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Brown projected an ISM reading of 56. At the same time, a lengthy federal government shutdown may cause “some softness in demand as businesses postpone decisions to invest.”
Today’s figures come as the U.S. begins its first partial shutdown in 17 years, idling 800,000 to 1 million federal employees, closing national parks and delaying the release of government economic data.
A partial shutdown would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. That’s a fraction of the country’s $15.7 trillion economy, and the effects probably will grow over time as consumers and businesses defer purchases and expansion plans.
Stocks advanced, after the Standard & Poor’s 500 Index fell to a three-week low, as investors speculated the economic effects of the shutdown. The S&P 500 gained 0.6% to 1,692.05 at 10:50 a.m. in New York.
Estimates for the factory index from 84 economists in the Bloomberg survey ranged from 52.4 to 57.2. Manufacturing accounts for about 12% of the economy.
Factories around the world are showing some signs of improvement. In China, the manufacturing rebound is limited. A Purchasing Managers’ Index was little changed at 51.1 in September after 51 a month earlier, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing.
Euro-area factory output expanded for a third month in September. An index based on a survey of purchasing managers in the manufacturing industry slipped to 51.1 from 51.4 in August, in line with an estimate published on Sept. 23, London-based Markit Economics said today. A reading above 50 indicates growth.