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.
The ISM’s gauge of employment climbed in September to 55.4, the highest since June 2012, from 53.3, while an index of production increased to 62.6 from 62.4. The group’s new orders measure declined to 60.5 last month from 63.2. The index of orders waiting to be filled increased to 49.5 from 46.5.
The report also showed gauges of factory inventories and customer stockpiles rose in September.
Sustained gains in motor vehicle sales have been a source of strength for the nation’s factories. Car and light truck sales rose to a 16 million annualized pace in August, the fastest since November 2007, according to Ward’s Automotive Group.
Ford Motor Co., the second-largest U.S. automaker, and Chrysler Group LLC overcame a quirk in the industry sales calendar to post surprise U.S. gains for September.
Ford said sales of its cars and light trucks rose 5.7% to 184,452 and Chrysler deliveries climbed 0.7% to 143,017. The companies exceeded analysts’ average estimates for little change in Ford sales and a 2.8% decline for Fiat SpA-controlled Chrysler in a survey by Bloomberg.
The recovery in housing is spurring also demand for construction materials, furniture and appliances. Outlays for construction of single-family dwellings increased in July to the highest level since 2008.
A pickup in domestic energy production has also benefitted companies such as Praxair Inc., a Danbury, Connecticut-based producer of gases and metallic and ceramic coating and powders.
“The energy infrastructure build out due to shale gas tight oil formation, especially in the Dakotas, Texas are driving demand for tanks, trailers and associated equipment,” Vice President John M. Panikar said in a Sept. 16 conference call. Future construction of petroleum-chemical “projects in Texas and Louisiana will be strong drivers for us and we look forward to seeing those come to fruition.”