American factories expanded in January at the weakest pace in eight months as orders slumped, a sign manufacturing cooled at the start of the year along with the weather.
The Institute for Supply Management’s factory index decreased to 51.3 from 56.5 the prior month, the Tempe, Arizona- based group’s report showed today. The January figure was less than the most pessimistic forecast in a Bloomberg survey in which the median estimate was 56. Readings above 50 indicate expansion.
The group’s measure of orders declined by the most since December 1980 as “a number” of purchasing managers said adverse weather slowed business. Sustained gains in consumer purchases, improvement in the labor market and a pickup in capital spending will be needed to keep assembly lines humming in the world’s biggest economy.
“Manufacturing activity was on a roll late in 2013, and a lot of economic activity and data has been suppressed somewhat because of the extraordinary weather that we’ve had,” Ward McCarthy, chief financial economist at Jefferies LLC in New York, said before the report. “Right now it’s just hard to figure out weather distortions and the fundamental developments and how to disentangle them.”
Estimates in the Bloomberg survey of 85 economists ranged from 54 to 57.5. Manufacturing accounts for about 12% of the economy. The factory gauge averaged 53.9 for all of 2013.
“Comments from the panel this month show a mix of concern over severe weather conditions from the coldest January in many, many years,” Bradley Holcomb, chairman of the ISM’s manufacturing report, said on a conference call with reporters. “The outlook for the rest of the year remains solid. This is a blip on the screen.”
Stocks extended losses after the report, with the Standard & Poor’s 500 Index falling 1% to 1,764.78 at 10:28 a.m. in New York.
The ISM’s new orders measure plunged to 51.2 last month from 64.4 in December. A gauge of production dropped to 54.8, also the lowest since May, from 61.7. The index of bookings waiting to be filled decreased to 48 in January from 51.5.
The measure of factory employment fell to 52.3 from 55.8 in December.