Manufacturing in U.S. expands at faster rate than forecast

Source: Bloomberg Source: Bloomberg

Manufacturing expanded at a faster pace than projected in February, a sign the industry was beginning to overcome bad weather across much of the U.S.

The Institute for Supply Management’s manufacturing index rose to 53.2 last month from 51.3 in January, the Tempe, Arizona-based group reported today. Readings above 50 signal expansion. The median forecast of 81 economists surveyed by Bloomberg was 52.3.

A gain in orders showed companies were gaining confidence that demand will pick up from a weather-related lull that slowed the economy at the start of the year. The pace of manufacturing will depend on consumers’ willingness to spend, growth in overseas markets and the appetites of businesses to invest in new equipment.

“We see solid capex spending this year as businesses begin to put money to work,” Brett Ryan, an economist with Deutsche Bank Securities Inc. in New York, said before the report. “What you’ve seen over the past couple quarters has been solid pickup in private-sector spending. Final private demand has been growing at a solid pace and that will feed on itself over time.”

Estimates in the Bloomberg survey ranged from 49.5 to 55. Manufacturing accounts for about 12% of the economy. The ISM’s factory gauge averaged 53.9 for all of last year.

Stocks held earlier losses, tracking a global selloff in equities, as Russia’s military presence in Ukraine prompted investors to seek havens. The Standard & Poor’s 500 Index declined 0.9% to 1,843.24 at 10:36 a.m. in New York.

Consumer Spending

Another report today showed consumer spending climbed more than forecast in January, reflecting the biggest increase in services in over 12 years as Americans began to enroll for health insurance. Household purchases, which account for almost 70% of the economy, rose 0.4% after a 0.1% gain the prior month that was smaller than previously estimated.

The ISM’s gauge of new orders increased to 54.5 from 51.2, while a measure of orders waiting to be filled rose to 52 from 48. The pickup in demand and backlogs points to a rebound in production, which may have been hampered by inclement weather. The group’s production index fell to 48.2, the weakest since May 2009, from 54.8. The 13.5-point slump in the production gauge in the last two months was the biggest since September-October 2008, when the economy was in a recession.

Rising Stockpiles

The inventory index climbed to 52.5, the highest since October, from 44, while a gauge of customer stockpiles increased to 46.5 from 44.

“There’s possibly an inventory mix problem, where looking at the comments about logistics, clearly there was a problem in shipping,” Bradley Holcomb, chairman of the supply management group, said on a conference call with reporters. Companies’ inability to get the parts they need could lead to an increase in overall inventories and slow production, he said.

A measure of export orders decreased to 53.5, the lowest level since September, from 54.5. The employment index held at 52.3 in January. The index of prices paid was little changed at 60 after 60.5.

Data on manufacturing across the globe have been mixed. In China, a pair of factory gauges declined in February. The purchasing managers index from HSBC Holdings Plc and Markit Economics dropped to a seven-month low and signal contraction. A similar gauge from the Chinese government with a larger sample size was the weakest since June.

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