BLBG: Manufacturing in U.S. Expanded More Than Forecast in January
By Bob Willis
Feb. 1 (Bloomberg) -- Manufacturing expanded in January at the fastest pace since August 2004, spearheading the U.S. recovery from the worst recession since the 1930s.
The Institute for Supply Management’s factory index rose to 58.4, higher than anticipated, from December’s 54.9, figures from the Tempe, Arizona-based group showed. Readings greater than 50 signal expansion. Measures of orders, production and employment increased.
Factories are stepping up production as stimulus-fueled gains in demand and record cutbacks in inventory boost orders. After job cuts of 7.2 million in the last two years, some companies such as Ford Motor Co. are beginning to hire again, laying the groundwork for sustained gains in spending.
“Manufacturing is leading the economy,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. “It’s the one sector that clearly is hot, whereas the overall economy is lukewarm.”
The figure exceeded economists’ median forecast of 55.5, according to 67 projections in a Bloomberg News survey. Estimates ranged from 53.5 to 58. Manufacturing accounts for about 12 percent of the economy.
A separate report today showed U.S. personal spending rose 0.2 percent in December, the third straight gain, according to the Commerce Department in Washington. Incomes climbed 0.4 percent, exceeding expectations.
The pace of global manufacturing is picking up in response to faster economic growth, separate reports showed today. U.K. factories expanded in January at the fastest rate since 1994, figures from the Chartered Institute of Purchasing and Supply and Markit Economics showed.
European Manufacturing
Growth in the 16-nation euro region’s manufacturing industry accelerated more than estimated in January, according to a separate report from London-based Markit Economics.
The U.S. ISM’s production index rose to 66.2 from 59.7 and the new orders index increased to 65.9 from 64.8.
A gauge of export orders increased to 58.5 from 54.5. The employment index rose to 53.3 from 50.2.
The index of prices paid jumped to 70 from 61.5.
The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 60.1 from 56.8 the prior month. The measure of orders waiting to be filled increased to 56 from 50. The inventory index rose to 46.5 from 43.
Government stimulus helped spark rebounds in the housing and automobile industries, two of the most depressed areas during the recession.
Orders, Inventories
Factories also benefited from increased orders after companies pared inventories last year by a record $125 billion. Efforts to rebuild depleted stockpiles at the end of the year contributed 3.4 percentage points to a fourth-quarter growth rate of 5.7 percent, the strongest in six years.
Corporate spending on new equipment is also beginning to pick up. Texas Instruments Inc., the second-largest U.S. chipmaker, said it will spend almost $1 billion this year to expand three factories and open a fourth to fill orders.
Federal Reserve officials, who left the benchmark lending rate unchanged in a range between zero and 0.25 percent on Jan. 27, noted in their policy statement that “business spending on equipment and software appears to be picking up.”
Employers last month may have added jobs for the second time in the last two years. Economists surveyed by Bloomberg forecast a 13,000 gain in payrolls in January after a loss of 85,000 the previous month. The Labor Department will report the figure on Feb. 5.
Encouraging Hiring
Production gains are starting to encourage the hiring needed to ensure the recovery is sustained.
Ford said Jan. 26 it will spend about $400 million and add 1,200 jobs at two Chicago plants to build a new, more fuel- efficient Explorer sport-utility vehicle.
Caterpillar Inc., the world’s largest maker of earthmoving equipment, has recalled more than 500 workers and said Jan. 27 that higher production will require “selective” increases in employment. Economies in North America, Europe and Japan are improving and more rapid rebounds are occurring in China and most developing countries, the Peoria, Illinois-based company said.
General Electric Co. is hiring workers in energy, health care and rail transportation, in part because governments’ economic-stimulus plans have helped lift demand.
GE, whose power-plant equipment generates one-third of the world’s electricity, is bidding to supply new passenger locomotives for Amtrak and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs.
“We will create jobs in the United States that could not have been created any other way,” John Rice, chief executive officer of GE Technology Infrastructure, said of the rail programs in a Jan. 28 Bloomberg Television interview.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
