U.S. Manufacturing Expansion Probably Slowed in July
U.S. Manufacturing Expansion Probably Slowed
Jim R. Bounds/Bloomberg
Economists' expectations of a U.S. slowdown fit with data published earlier today in China showing manufacturing at its weakest in more than a year.
Economists' expectations of a U.S. slowdown fit with data published earlier today in China showing manufacturing at its weakest in more than a year. Photographer: Jim R. Bounds/Bloomberg
Manufacturing in the U.S. probably expanded in July at a slower pace and construction spending fell for a second month, signaling the world’s largest economy is cooling, economists said before reports today.
The Institute for Supply Management’s factory index dropped to an eight-month low of 54 from 56.2, according to the median estimate of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Separate figures may show spending on construction projects declined 0.5 percent in June.
Production may ease to a more sustainable pace as the surge in inventory rebuilding that sparked a manufacturing-led economic recovery winds down. Companies such as Caterpillar Inc. are benefiting more from overseas demand as limited job growth in the U.S. restrains consumer spending.
“Manufacturing is seeing a moderation in the rate of growth, just like the rest of the economy,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “We’ll still get some boost from inventory restocking, just not to the same extent as before. Demand will return slowly.”
The dollar was little changed against the euro today, trading at $1.3064 at 9:36 a.m. in London.
Economists’ expectations of a U.S. slowdown fit with data published earlier today in China showing manufacturing at its weakest in more than a year. A Chinese purchasing managers’ index released by HSBC Holdings Plc and Markit Economics slid to 49.4 in July from 50.4 in the prior month, while separate government-backed PMI figures fell to 51.2 from 52.1.
ISM’s Report
The Tempe, Arizona-based ISM’s report on U.S. manufacturing is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 52.5 to 56.
Also at 10 a.m., the Commerce Department will release data on construction spending. Economists’ projections ranged from a drop of 2.1 percent to a gain of 0.5 percent, following a 0.2 percent decline in May.
Manufacturing shares have outperformed the broader market this year. The Standard & Poor’s Supercomposite Industrial Machinery Index, which includes Caterpillar and Deere & Co., has increased 14.5 percent in 2010 compared with a 1.2 percent decline in the S&P 500.
The manufacturing industry, which accounts for about 11 percent of the economy, has been driving the recovery from the worst recession since the 1930s as rising sales in markets such as China led businesses to ramp up spending on equipment and to replenish stockpiles.
Construction Equipment
Caterpillar, the world’s largest maker of construction equipment, this month raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.
“You’ve got strong growth in India and China that provides demand for commodities,” Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said in an interview on July 22. “Most of the mining is happening in the developing parts of the world.”
China’s economy is also still powering Europe’s economy, reports published today showed. Euro-region manufacturing expanded faster than initially estimated in July, Swiss manufacturing grew the most on record and U.K. activity slowed less than economists had forecast.
In the U.S., further gains in manufacturing require a pickup in consumer spending, which accounts for about 70 percent of the economy. A Commerce Department report last week showed second-quarter gross domestic product grew at a 2.4 percent annual pace, less than the median forecast of economists surveyed by Bloomberg, as Americans limited purchases.
Inventories
“This is solid growth,” Christina Romer, chairwoman of President Barack Obama’s Council of Economic Advisers, said in a July 30 interview with Bloomberg Television. “It is not strong enough.”
Corporate spending on equipment and software, which had the biggest increase since 1997, contributed 1.4 percentage points to economic growth last quarter and the change in inventories added about 1.1 points, according to the GDP report.
Some regional reports reinforce the deceleration in manufacturing. The Federal Reserve Bank of Philadelphia’s general economic index fell last month to the lowest level since August 2009, while the New York Fed’s measure dropped to the lowest this year. In contrast, a July 30 report showed the ISM- Chicago business barometer rose to a three-month high of 62.3 in July.
The projected drop in construction spending underscores the weakness in homebuilding and sales after the expiration of a government tax credit that boosted builder sentiment and brought starts to the highest level in more than a year in April. Demand will now depend on the state of the labor market and on foreclosures.
More than seven out of 10 Americans say the economy is still mired in a recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll. The U.S. lost 8.4 million jobs during the slump that began in December 2007.
Bloomberg Survey
=========================================================
ISM ISM Construction
Manu Prices Spending
Index Index MOM%
=========================================================
Date of Release 08/02 08/02 08/02
Observation Period July July June
---------------------------------------------------------
Median 54.0 54.5 -0.5%
Average 54.3 54.2 -0.6%
High Forecast 56.0 57.0 0.5%
Low Forecast 52.5 52.0 -2.1%
Number of Participants 62 12 43
Previous 56.2 57.0 -0.2%
---------------------------------------------------------
4CAST Ltd. 53.5 --- -1.0%
Action Economics 55.0 55.0 -0.6%
Aletti Gestielle SGR 54.3 53.0 ---
Ameriprise Financial Inc 55.0 55.0 -0.5%
Banesto 53.8 --- -0.5%
Bank of Tokyo- Mitsubishi 53.5 --- -2.1%
Bantleon Bank AG 54.8 --- ---
Barclays Capital 54.0 --- -0.5%
Bayerische Landesbank 55.2 --- ---
BBVA 55.0 55.5 -0.8%
BMO Capital Markets 55.0 55.0 -0.5%
BNP Paribas 54.5 --- -0.3%
Capital Economics 54.0 --- 0.5%
CIBC World Markets 54.0 --- -0.5%
Citi --- --- -0.3%
ClearView Economics 54.0 52.0 -0.5%
Commerzbank AG 54.0 --- ---
Credit Agricole CIB 55.4 --- ---
Credit Suisse 53.5 57.0 ---
DekaBank 54.0 --- -0.2%
Desjardins Group 55.2 --- -1.0%
Deutsche Bank Securities 56.0 --- -0.5%
Deutsche Postbank AG 54.0 --- ---
DZ Bank 55.7 --- ---
First Trust Advisors 54.8 --- -0.9%
FTN Financial 56.0 --- ---
Helaba 53.5 --- ---
HSBC Markets 52.5 --- -0.3%
Hugh Johnson Advisors 56.0 --- ---
IDEAglobal 54.0 52.0 -0.3%
Informa Global Markets 54.0 --- -0.8%
ING Financial Markets 54.0 53.0 -0.4%
Intesa-SanPaulo 53.0 --- -0.2%
J.P. Morgan Chase 54.0 --- -0.5%
Janney Montgomery Scott 54.2 --- -0.9%
Jefferies & Co. 53.0 --- -0.7%
Landesbank Berlin 53.0 --- 0.2%
Landesbank BW 53.7 --- ---
Maria Fiorini Ramirez 54.5 --- ---
MFC Global Investment 54.5 54.0 -0.2%
Moody’s Economy.com 54.7 --- -0.8%
Morgan Keegan & Co. --- --- -0.5%
Morgan Stanley & Co. 55.0 --- 0.0%
Natixis 55.0 --- ---
Nomura Securities Intl. 55.0 --- ---
Pierpont Securities LLC 54.7 --- ---
PNC Bank 54.0 --- -0.5%
RBC Capital Markets 54.0 --- ---
Ried, Thunberg & Co. 54.5 --- -0.5%
Scotia Capital 54.0 --- -0.3%
Societe Generale 53.5 --- ---
Standard Chartered 53.0 --- ---
State Street Global Markets 53.9 55.0 -0.5%
Stone & McCarthy Research 52.5 --- -0.8%
TD Securities 54.8 --- -0.7%
Thomson Reuters/IFR 53.4 --- -0.9%
UniCredit Research 54.0 --- ---
Union Investment 55.6 --- ---
University of Maryland 54.0 54.0 -0.6%
Wells Fargo & Co. 55.0 --- -1.4%
WestLB AG 54.9 --- -0.4%
Westpac Banking Co. 54.0 --- -0.8%
Woodley Park Research 54.1 --- -1.0%
Wrightson Associates 55.0 --- -0.5%
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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