Production in U.S. Probably Increased as Manufacturers Supported Expansion

Industrial production in the U.S. probably rose in January for a third consecutive month, adding to signs manufacturing is leading the expansion, economists said before a report today.

Output at factories, mines and utilities increased 0.5 percent after a 0.8 percent gain in December, according to the median forecast of 80 economists surveyed by Bloomberg News. Other figures may show homebuilding climbed from a one-year low, and rising costs for oil and raw materials pushed up wholesale prices.

Overseas demand for American-made goods coupled with gains in business and consumer spending mean manufacturing, which accounts for about 11 percent of the economy, will keep bolstering growth. Housing, the industry that helped trigger the recession, is struggling to recover from depressed levels as unemployment hovers around 9 percent and lenders foreclose on delinquent owners.

“Manufacturing is benefiting from export orders and growth in U.S. demand,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “That’s really driving growth. The residential construction market is an absolute laggard in this economy.”

The Federal Reserve’s data on industrial production is due at 9:15 a.m. in Washington. Economists’ estimates ranged from an increase of 0.9 percent to a drop of 0.5 percent.

Home Building

At 8:30 a.m., the Commerce Department may report builders broke ground on 539,000 homes at an annual rate in January, according to the median forecast in the Bloomberg survey. Permits, an indicator of future construction, likely slumped after builders rushed to fill applications in December before changes in building codes took effect this year.

Producer prices rose 0.8 percent last month, economists in the survey projected. The Labor Department release is also due at 8:30 a.m. Core wholesale costs, which exclude food and fuel, probably climbed 0.2 percent for a second month.

While demand in emerging markets is boosting commodity costs, companies have limited scope to pass those increases on to consumers. The lack of inflation and absence of a pickup in employment are among reasons the Fed may complete $600 billion in asset purchases by June to stimulate the economy.

Inflation may “persist below the levels that Fed policy makers have judged to be consistent” with their long term goal, Fed Chairman Ben S. Bernanke told the House Budget Committee on Feb. 9. He also said “output growth likely to be moderate for a while.”

Fed Minutes

Minutes of the Fed’s January meeting, due at 2 p.m., may shed more light on policy makers’ discussions on growth, inflation and the labor market. The central bank also will issue updated forecasts.

Today’s data may show the influence of last month’s weather on factory production and housing starts. Winter storms spread from the Midwest and the South to New England, covering 71 percent of the country with snow on Jan. 12, according to the National Climatic Data Center.

“Chances are, activity was held down by the weather,” said Jim O’Sullivan, global chief economist at MF Global Inc. in New York.

Factories, which led the economy out of the recession that ended June 2009, are likely to stay busy this year as consumers continue spending, businesses invest in new equipment and companies replenish inventories to meet sales in the U.S. and abroad.

Orders Rising

Parker Hannifin Corp., a Cleveland-based manufacturer viewed as a barometer of global industry, is among businesses seeing an improvement in orders as the economy recovers. The maker of components used in construction equipment, aircraft, refrigeration, and hybrid delivery trucks also projected growth in the Europe, Asia and Latin America regions.

“We’re pretty bullish as far as what the future order pattern is,” Thomas Williams, executive vice president and operating officer, said on a conference call on Feb. 9. “Our backlog is building,” he said, and “we’ve got ramp-up in volume.”

Investors are bullish on the outlook for manufacturers. The Standard & Poor’s Supercomposite Machinery Index has surged 56 percent in the 12 months to Feb. 15, outpacing a 21 percent gain in the broader S&P 500 index.

Recent reports reinforce projections for continued growth in manufacturing. The Institute for Supply Management’s factory index jumped last month to the highest level since May 2004, while the Fed Bank of New York’s general economic gauge showed activity expanded in February at the fastest pace since June.

                        Bloomberg Survey

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                               PPI  Housing Building     Ind.
                                     Starts  Permits    Prod.
                              MOM%   ,000’s   ,000’s     MOM%
================================================================

Date of Release              02/16    02/16    02/16    02/16
Observation Period            Jan.     Jan.     Jan.     Jan.
----------------------------------------------------------------
Median                        0.8%      539      559     0.5%
Average                       0.8%      535      555     0.5%
High Forecast                 1.4%      590      610     0.9%
Low Forecast                  0.3%      475      475    -0.5%
Number of Participants          74       76       56       80
Previous                      0.9%      529      627     0.8%
----------------------------------------------------------------
4CAST Ltd.                    0.7%      540      580     0.9%
ABN Amro Inc.                 0.8%      540     ---      0.6%
Action Economics              0.8%      520      510     0.6%
Aletti Gestielle              0.6%      555      580     0.3%
Ameriprise Financial          0.9%      538      580     0.8%
Banesto                       ---       542      556     0.6%
Bank of Tokyo- Mitsubishi     1.0%      555      587     0.6%
Barclays Capital              1.0%      545     ---      0.6%
Bayerische Landesbank         ---      ---      ---      0.4%
BBVA                          0.6%      550      530     0.5%
BMO Capital Markets           0.9%      520      510     0.7%
BNP Paribas                   0.8%      515     ---      0.7%
BofA Merrill Lynch Research   0.9%      515      560     0.4%
Briefing.com                  0.7%      555      550     0.6%
Capital Economics             0.8%      500     ---     -0.2%
CIBC World Markets            0.7%      540      580     0.5%
Citi                          0.7%      510      540     0.5%
ClearView Economics           0.6%      550      600     0.6%
Commerzbank AG                0.6%      540      520     0.4%
Credit Suisse                 1.2%      540      560     0.5%
Daiwa Securities America      0.6%      550     ---      0.3%
Danske Bank                   0.8%      570      579     0.4%
DekaBank                      0.8%      550      570     0.5%
Desjardins Group              0.6%      530      550     0.7%
Deutsche Bank Securities      0.8%      500      580     0.6%
Deutsche Postbank AG          0.6%     ---       555     0.5%
DZ Bank                       0.8%      540      610     0.4%
Exane                         1.2%      540     ---      0.5%
Fact & Opinion Economics      0.9%      560     ---      0.6%
First Trust Advisors          1.0%      535     ---      0.7%
Goldman, Sachs & Co.          0.9%      569     ---      0.5%
Helaba                        0.6%      560      550     0.3%
High Frequency Economics      1.2%      500      475     0.2%
Horizon Investments           0.7%      525      550     0.3%
HSBC Markets                  0.9%      540      562     0.5%
Hugh Johnson Advisors         0.6%      590     ---      0.8%
Ibersecurities                ---      ---       542     0.6%
IDEAglobal                    0.8%      545      580     0.3%
IHS Global Insight            0.9%      499      523     0.4%
Informa Global Markets        0.7%      510      550     0.5%
ING Financial Markets         1.0%      552      545     0.7%
Insight Economics             1.0%      530     ---      0.4%
Intesa-SanPaulo               0.8%      540      590     0.8%
J.P. Morgan Chase             1.1%      540      530    -0.2%
Janney Montgomery Scott       0.8%      515      560     0.9%
Jefferies & Co.               0.8%      550      575     0.5%
Landesbank Berlin             0.6%      560      560     0.2%
Landesbank BW                 0.8%      575      530     0.8%
Maria Fiorini Ramirez         0.9%      530     ---      0.5%
MET Capital Advisors          1.1%      510     ---      0.4%
MF Global                     1.0%      525      525     0.1%
Moody’s Analytics             0.8%      530      550     0.8%
Morgan Keegan & Co.           0.7%      534      570     0.5%
Morgan Stanley & Co.          0.7%      475     ---      0.3%
National Bank Financial       0.8%      530     ---      0.6%
Natixis                       0.6%      550     ---      0.7%
Nomura Securities Intl.       0.8%      535      570     0.4%
Nord/LB                       0.7%      530      590     0.4%
OSK Group/DMG                 ---       540     ---      0.0%
Pierpont Securities           0.9%      520     ---      0.3%
PineBridge Investments        1.4%      527     ---      0.8%
PNC Bank                      0.5%      540     ---     -0.5%
Raiffeisenbank International  0.3%     ---      ---      0.4%
Raymond James                 0.7%      540      570     0.8%
RBC Capital Markets           0.7%      530      490     0.4%
RBS Securities Inc.           0.8%      495     ---      0.2%
Scotia Capital                ---       534      558     0.5%
Societe Generale              1.1%      540      594     0.4%
Standard Chartered            0.8%      535      560     0.4%
State Street Global Markets   0.9%      516      557     0.6%
Stone & McCarthy Research     0.8%      530      544     0.1%
TD Securities                 1.0%      550      580     0.8%
Thomson Reuters/IFR           0.8%      510      500     0.6%
UBS                           1.0%      490      520     0.3%
UniCredit Research            ---       535      570     0.5%
University of Maryland        0.8%      550      535     0.5%
Wells Fargo & Co.             0.7%      550     ---      0.7%
WestLB AG                     0.7%      553      540     0.5%
Westpac Banking Co.           1.1%      529      577     0.5%
Wrightson ICAP                1.0%      530      570     0.4%
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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