Manufacturing in Philadelphia Area Expands in Sign Factories Lead Recovery

Manufacturing in the Philadelphia region expanded in January for a fourth month as orders grew the most since September 2004 and employment picked up.

The Federal Reserve Bank of Philadelphia’s general economic index slipped to 19.3 from 20.8 last month. The gauge was forecast to hold at 20.8, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Demand for new equipment and more exports to countries like China are boosting sales at manufacturers such as International Business Machines Corp. Gains in consumer spending, which accounts for about 70 percent of the economy, may keep factories expanding and lead to the job growth needed to accelerate the expansion.

“Manufacturing is continuing to see a particularly good period at present,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. As a result, there is a “large potential for hiring to pick up,” he said.

Estimates for the manufacturing gauge in the Bloomberg survey of 56 economists ranged from 12.5 to 25.

Stocks fell on concern China will raise interest rates to cool its economy. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,276.5 at 10:37 a.m. in New York. Treasury securities fell, pushing up the yield on the benchmark 10-year note to 3.42 percent from 3.34 percent late yesterday.

Photographer: Mike Mergen/Bloomberg

Raw and recycled plastic resin, or plastic pellets, are shown for a photo before being processed into plastic bags at Hilex Poly Co.'s manufacturing plant in Pennsylvania. Close

Raw and recycled plastic resin, or plastic pellets, are shown for a photo before being... Read More

Close
Open
Photographer: Mike Mergen/Bloomberg

Raw and recycled plastic resin, or plastic pellets, are shown for a photo before being processed into plastic bags at Hilex Poly Co.'s manufacturing plant in Pennsylvania.

Leading Indicators

Separate figures from the Conference Board showed the economy is gathering momentum. The New York-based group’s index of leading economic indicators rose 1 percent in December after a 1.1 percent gain in November.

The National Association of Realtors said purchases of previously owned homes rose 12 percent in December to a 5.28 million annual rate, the fastest since May.

The Labor Department said today that fewer Americans filed claims for jobless benefits last week, a sign of an improving labor market. Applications for unemployment insurance dropped by 37,000 to 404,000 in the week ended Jan. 15.

The Philadelphia Fed bank’s new orders measure rose to 23.6, from 10.6 in December. The employment index increased to 17.6, the highest since April 2006, from 4.3 last month. A measure of the average workweek fell to 10.6 in January from 16.8.

Sales, Prices

The shipments gauge increased to 13.4 from 5.2 last month. The index of prices paid jumped to 54.3, the highest since July 2008, from 47.9 the prior month, while the measure of prices received rose to 17.1 from 9.4.

The overall Philadelphia Fed’s index isn’t composed of the individual measures, so some economists consider it a gauge of sentiment among manufacturers. The New York Fed’s factory measure, released Jan. 18, rose to 11.9 this month from 9.9 in December.

Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing during the month.

The ISM will release its report on Feb. 1. The measure last month increased to 57, a seven-month high, from 56.6 in November.

Business Spending

Manufacturing makes up about 11 percent of the economy and is getting a boost from expanding world trade. Exports rose 0.8 percent in November to the highest level since August 2008, according to Commerce Department data released Jan. 13. Business spending on equipment and software advanced at a 15.4 percent annual rate in the third quarter.

IBM, the world’s largest computer-services provider, said this week that fourth-quarter hardware revenue climbed 21 percent to $6.3 billion, as a mainframe computer introduced in July helped boost sales in that product category by almost 70 percent.

“The improvement in our revenue growth was driven by the hardware and software transactional businesses,” Mark Loughridge, chief financial officer of the Armonk, New York- based company, said on a Jan. 18 conference call. “We see customers starting to spend more in their base business as we exit the recession.”

The U.S. is moving to strengthen economic ties with China as a way to boost American exports. President Barack Obama said the U.S. and China both reap “substantial benefits” from cooperation on economic and strategic issues even as friction remains over currency, trade and human rights.

Following a meeting with business leaders from both countries yesterday, Obama said that a prosperous and growing China is an important market for U.S. goods, and the administration highlighted deals to sell Boeing Co. airplanes and General Electric Co. locomotives.

“We want to sell you all kinds of stuff,” Obama said at a White House news conference with Chinese President Hu Jintao. “We want to sell you planes, we want to sell you cars, we want to sell you software.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.