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Tags: US | Manufacturing | Global | Rebound

US Manufacturing Picks Up Steam Amid Global Rebound

Monday, 02 December 2013 04:01 PM EST

Manufacturing in the U.S. unexpectedly accelerated in November at the fastest pace in more than two years, indicating factories will be a source of strength for the economy heading into 2014.

The Institute for Supply Management’s index rose to 57.3, the highest since April 2011, from 56.4 a month earlier, the Tempe, Arizona-based group’s report showed Monday. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of economists was 55.1.

Export orders climbed, reflecting a rebound in the world economy that’s translating into more production and hiring. American factories are outpacing their global competitors as companies such as Deere & Co. benefit from a domestic housing recovery that’s spurred demand for construction equipment, appliances and furniture.

“We are likely to continue to get a tailwind from the recovery in Europe and the ongoing but slower pace of recovery in the housing industry,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit and the top U.S.-based forecaster of ISM for the past two years, according to data compiled by Bloomberg.

Six straight gains in the ISM measure represent the longest such stretch since the first 10 months of 2009, when the economy was emerging from recession. The gauge has averaged 56.6 over the past three months, the strongest since May 2011.


Global Manufacturing

While manufacturing across the globe has picked up in other parts of the world, the improvement has lagged that of the U.S. In China, the Purchasing Managers Index held at 51.4 in November, the highest since April 2012, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday.

“Things seem to be looking up everywhere,” Bradley Holcomb, chairman of the ISM factory survey, said in a telephone interview. “We’re clearly in a leadership position with high numbers, strong export activity.” Holcomb said that he sees “optimism for the rest of the year and moving into 2014.”

Euro-area manufacturing output expanded more than initially estimated last month, led by Germany. Markit said Monday its index rose to a more than two-year high of 51.6 from 51.3 in October. That compares with an initial estimate of 51.5 for November. In the U.K., the expansion at factories was the strongest since February 2011, according to Markit, while measures of manufacturing in France and Spain declined.

‘Imbalanced’ Recovery

“The manufacturing recovery strengthened further in November, led by the U.S., U.K. and Japan,” Andrew Kenningham, senior global economist at Capital Economics in London, said in a research note. “The recovery continues to be quite imbalanced, however, with the eurozone still the weakest link among the major advanced economies.”

The ISM’s figures, which are a gauge of sentiment among factory purchasing managers, have yet to be reflected in other recent data. Orders for durable goods, including aircraft and capital equipment such as machinery and computers, declined 2 percent in October, according to the Commerce Department.

Business spending on equipment declined at a 3.7 percent annualized rate in the third quarter, the weakest in a year, the agency’s figures showed last month.

“It’s a bit troublesome” that actual demand has lagged behind the pickup in factory optimism, said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “Some of that may be due to domestic demand not really being strong enough here, and the global economy is still relatively soft.”

Economists’ Estimates

Estimates for the factory index from 77 economists in the Bloomberg survey ranged from 53.5 to 57.5. Manufacturing accounts for about 12 percent of the economy. Of the 18 industries covered, 15 reported expansion in November, led by plastics, textiles and furniture, the ISM said.

The ISM’s gauges of U.S. new orders and export demand rose last month to the highest levels since April 2011. An index of production climbed and the group’s factory employment measure increased in November to the highest level since April 2012. Order backlogs also increased, indicating production gains will follow as inventories at factories eased.

American manufacturers have been benefiting from the housing recovery, which has boosted demand for everything from heavy equipment to appliances.

Moline, Illinois-based Deere, the second-largest maker of construction equipment in the U.S. behind Caterpillar Inc., forecast better-than-expected earnings for its 2014 fiscal year as a stronger residential real-estate market spurs demand for its loaders and excavators.

Furniture, Appliances

“The economy continues slowly moving forward,” Susan Karlix, manager of investor relations, said on a Nov. 20 call with analysts and investors. “Home sales and prices are improving and residential construction is growing.”

The housing recovery has also generated more demand for big-ticket goods such as furniture and appliances. New-home purchases averaged about 436,000 at an annual rate in the first eight months of this year, up from 368,000 for all of 2012, according to Commerce Department data.

“Every new home equates to about four new appliances and every existing-home sale equates to about two new appliances,” Larry Venturelli, chief financial officer at Benton Harbor, Michigan-based Whirlpool Corp., said at a conference in New York on Nov. 20. “We are really in the third inning of growth within housing and this is a big demand driver for us going forward.”

Construction Spending

Another report Monday showed builders were also relatively unaffected by the 16-day federal government shutdown in October. Spending on construction projects climbed a more-than-forecast 0.8 percent in October from the prior month, the biggest gain since May, according to figures from the Commerce Department. At a $908.4 billion annualized pace, the value of outlays last month was the highest since May 2009.

The October increase in construction spending was paced by a 3.9 percent jump in government projects that was the biggest advance since March 2004. Outlays at state and local agencies climbed by the most since February 2009, while federal spending jumped by the most since January 2011.

© Copyright 2022 Bloomberg News. All rights reserved.

Manufacturing in the U.S. unexpectedly accelerated in November at the fastest pace in more than two years, indicating factories will be a source of strength for the economy heading into 2014.
Monday, 02 December 2013 04:01 PM
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