U.S. Manufacturing Expands at Faster Pace in October

ISM factory index climbs to 51.7, the highest reading since May.

Manufacturing in the U.S. expanded in October at a faster pace than projected as orders and production picked up, showing the industry is stabilizing.

The Institute for Supply Management’s factory index climbed to 51.7 last month, the highest since May, from 51.5 in September, the Tempe, Arizona, group reported today. Economists estimated 51 for October, according to the median estimate in a Bloomberg survey. A reading of 50 is the dividing line between growth and contraction.

The report shows American factories are holding up amid a global economic slowdown that’s weakened manufacturing from Asia to Europe. At the same time, companies such as Cummins Inc. are feeling the effects of the so-called fiscal cliff that’s prompted cutbacks in equipment purchases.

“Manufacturing as a whole appears to be trying to regain momentum,” Bradley Holcomb, chairman of the ISM survey, said on a conference call with reporters. Still, the report and comments from purchasers “suggest a lukewarm environment for demand. The global economy is still fragile.”

Estimates ranged from 49.2 to 52.5 in the Bloomberg survey of 88 economists. An ISM reading above 42.5 generally is consistent with an expanding overall economy. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Stocks climbed after the figures, with the Standard & Poor’s 500 Index rising 1 percent to 1,426.3 at 10:40 a.m. in New York.

The ISM’s production index increased to a five-month high of 52.4 in October from 49.5 in September. The new orders measure climbed to 54.2, also the highest since May, from 52.3.

The employment index fell to 52.1 from a three-month high of 54.7. The index of prices paid dropped to 55 from 58. A measure of supplier deliveries decreased to 49.6 from 50.3.

A measure of orders waiting to be filled decreased to 41.5, matching September 2011 as the weakest since April 2009, from 44.

Elsewhere, China’s manufacturing expanded for the first time in three months as output and new orders climbed, adding to signs growth in the world’s second-biggest economy is rebounding after a seven-quarter slowdown.

The Purchasing Managers’ Index climbed to 50.2 in October from 49.8 in September, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. A separate survey from HSBC Holdings Plc and Markit was at an eight-month high.

 

U.K. Manufacturing

In the U.K., manufacturing contracted more than economists forecast in October on waning domestic demand and as export weakness spread to Asia from Europe. A gauge based on a survey of purchasing managers fell to 47.5 from a revised 48.1 in September, Markit and the Chartered Institute of Purchasing and Supply said in London today. Economists had forecast a decline to 48, according to the median of 27 estimates in a Bloomberg survey.

Regional data on U.S. manufacturing, which accounts for about 12 percent of the economy, have signaled weakness in the industry.

A business activity gauge from the Institute for Supply Management-Chicago Inc. unexpectedly contracted in October for a second month. In the New York area, manufacturing shrank for a third time as shipments and employment declined. In the Philadelphia region, manufacturing expanded for the first time in six months.

The global economy is struggling to improve. The euro-area jobless rate climbed to a record in September as the debt crisis eroded investor and business confidence. Unemployment in the 17- nation region rose to 11.6 percent, the highest since the data series started in 1995, from 11.5 percent in August, the Luxembourg-based European Union statistics office reported yesterday.

The debt crisis has pushed at least five euro nations into recessions, forcing companies to cut costs to help weather the turmoil. Economic confidence in the region fell in October.

“Clearly we are experiencing significantly weaker demand in many of our largest markets,” Thomas Linebarger, chairman and chief executive officer at Cummins, said on a conference call yesterday. Columbus, Indiana-based Cummins is a maker of heavy-truck engines. “Unfortunately, there is also a high degree of uncertainty about the direction of the global economy, and at this point in time, it is not clear when demand will improve.”

 

Fiscal Cliff

American companies also are concerned about the economic implications of the fiscal cliff, which will be reached in January unless Congress acts to avoid it.

“The industry is experiencing slower-than-expected new order rates,” Linebarger said. “End users are reluctant to proceed with new purchases, uncertainty about the U.S. economy and concerns about possible impacts from the fiscal cliff.”

At the same time, a rebounding housing market is helping sustain the expansion in the world’s largest economy. Confidence among U.S. homebuilders in October climbed for a sixth month. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 last month, the highest since June 2006, from 40 in September, according to figures from the Washington-based group.

 

Bloomberg News

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