Manufacturing in U.S. Probably Grew in February at Fastest Pace Since 2004

Manufacturing in the U.S. probably grew in February at the fastest pace in almost seven years, indicating factories are providing more momentum for the expansion, economists said before a report today.

The Institute for Supply Management’s factory index rose last month to 61, the highest since May 2004, from January’s 60.8, according to the median estimate in a Bloomberg News survey. Readings greater than 50 signal growth. Other data may show construction spending fell 0.4 percent in January.

Business investment in new equipment is prompting companies like Eaton Corp. and Deere & Co. to raise profit forecasts as the global economy expands. Federal Reserve Chairman Ben S. Bernanke, testifying before Congress today, may reiterate that policy makers are concerned about the pace of recovery and the time it’s taking to reduce unemployment even as manufacturing prospers.

“Manufacturing remains one of the undeniable bright spots in the economy,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. “We’re looking for hiring to pickup this year and we are looking for it to be investment- led. People don’t buy these machines to leave them idle.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates of the 77 economists in the Bloomberg survey ranged from 58.7 to 63.3.

Also at 10 a.m., the Commerce Department in Washington will release data on construction spending. Projections in the Bloomberg survey of 49 economists ranged from a drop of 2 percent to a gain of 0.8 percent, following a 2.5 percent decline in December.

Regional Manufacturing

Recent regional factory reports underscore the strength of manufacturing at the start of the year. The Institute for Supply Management-Chicago Inc. said yesterday that its business barometer rose in February to the highest level since July 1988.

The Fed Bank of New York on Feb. 15 reported manufacturing accelerated in that region in February, while the Philadelphia Fed said two days later that factories in its area expanded at the fastest pace since January 2004.

The strength in manufacturing has been reflected in higher share prices. The Standard & Poor’s Supercomposite Industrial Machinery Index, which includes Caterpillar Inc. and Deere, has climbed 47 percent in the past 12 months, compared with a 19 percent increase in the broader S&P 500.

Manufacturing, which accounts for about 11 percent of the world’s largest economy, led the recovery from the recession that ended in June 2009 as businesses rebuilt stockpiles slashed during the slump that began in December 2007. Rising exports have also spurred production.

Last Year

In 2010, U.S. gross domestic product increased 2.8 percent, the most in five years.

“The numbers coming out of the U.S. for GDP and industrial production are pretty solid, but we have an issue with regard to employment,” James Meil, chief economist at Eaton said on a Feb. 25 teleconference. The Cleveland-based maker of pumps used in forklifts, raised its full-year forecast amid higher hydraulics sales.

Employment increased by 190,000 workers last month, the most since May 2010 and rebounding after a 36,000 gain in January, when winter storms depressed the count, according to the median forecast of economists surveyed by Bloomberg ahead of Labor Department data on March 4. The report may also show the jobless rate increased to 9.1 percent from 9 percent.

Bernanke will deliver the central bank’s semiannual report on monetary policy before the Senate Banking Committee today at 10 a.m. Tomorrow, he will testify before the House Financial Services Committee.

Bernanke Testimony

In an appearance before the same committee on Feb. 9, Bernanke told legislators that while the declines in the jobless rate in December and January “do provide some grounds for optimism,” he cautioned that “with output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level.”

Further gains in manufacturing may be constrained in coming months by a slowdown in consumer spending, which accounts for about 70 percent of the economy. Household purchases rose at a 0.2 percent pace in January, half the rate forecast by economists and the slowest pace since June, the Commerce Department reported yesterday.

At the same time, auto dealers are seeing improved demand. Car sales in February probably rose to a 12.6 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, after a 12.54 million annual rate the previous month, according to the median of analysts surveyed before industry data today.

Factories may receive a boost this year from a government program that accelerates tax depreciation for equipment purchases. The incentive is part of the $858 billion bill signed by President Barack Obama in December that extended tax cuts for two years, continued expanded unemployment insurance benefits through 2011 and trimmed payroll taxes.

                      Bloomberg Survey

================================================================
                         Construct      ISM      ISM
                          Spending     Manu   Prices
                              MOM%    Index    Index
================================================================

Date of Release              03/01    03/01    03/01
Observation Period            Jan.     Feb.     Feb.
----------------------------------------------------------------
Median                       -0.4%     61.0     83.0
Average                      -0.4%     60.8     83.3
High Forecast                 0.8%     63.3     88.0
Low Forecast                 -2.0%     58.7     80.0
Number of Participants          49       77       17
Previous                     -2.5%     60.8     81.5
----------------------------------------------------------------
4CAST Ltd.                   -1.0%     61.0     ---
ABN Amro Inc.                 ---      61.0     ---
Action Economics             -0.8%     60.0     81.5
Aletti Gestielle              ---      60.0     83.0
Ameriprise Financial          0.0%     62.0     80.0
Banesto                      -0.5%     60.4     ---
Bank of Tokyo- Mitsubishi    -0.3%     63.3     ---
Barclays Capital             -0.4%     61.5     ---
Bayerische Landesbank         ---      61.0     ---
BBVA                         -0.8%     60.3     83.0
BMO Capital Markets          -0.4%     60.0     ---
BNP Paribas                  -0.8%     60.0     ---
BofA Merrill Lynch           -0.2%     59.5     ---
Briefing.com                 -1.0%     61.5     ---
Capital Economics            -2.0%     60.5     ---
CIBC World Markets            ---      59.5     ---
Citi                         -0.6%     59.0     85.0
Commerzbank AG                ---      61.0     ---
Credit Agricole CIB           ---      61.0     ---
Credit Suisse                 ---      61.5     82.0
Daiwa Securities America     -0.3%     60.0     ---
Danske Bank                   ---      60.0     ---
DekaBank                     -0.3%     61.0     ---
Deutsche Bank Securities      0.5%     60.0     ---
Deutsche Postbank AG          ---      61.5     ---
Exane                         ---      61.0     ---
Fact & Opinion Economics     -0.7%     61.5     83.0
First Trust Advisors         -0.9%     60.7     ---
Goldman, Sachs & Co.          0.0%     61.0     ---
Helaba                        ---      60.0     ---
High Frequency Economics     -1.0%     62.0     ---
Hugh Johnson Advisors         ---      59.0     ---
Ibersecurities                ---      60.3     ---
IDEAglobal                   -0.5%     62.0     83.0
IHS Global Insight           -0.9%     62.0     ---
Informa Global Markets       -0.2%     60.4     83.0
ING Financial Markets         0.5%     62.0     83.0
Insight Economics            -1.0%     62.0     ---
Intesa-SanPaulo              -0.3%     60.5     ---
J.P. Morgan Chase            -0.9%     62.0     ---
Janney Montgomery Scott      -0.1%     59.2     ---
Jefferies & Co.               0.2%     59.0     ---
Landesbank Berlin            -0.2%     62.0     ---
Landesbank BW                 0.5%     62.0     ---
Maria Fiorini Ramirez         ---      60.5     ---
MET Capital Advisors          ---      61.5     ---
MF Global                     0.5%     61.5     83.0
Mizuho Securities            -1.0%     59.8     ---
Moody’s Analytics             0.2%     60.0     ---
Morgan Keegan & Co.          -0.4%     ---      ---
Morgan Stanley & Co.         -0.4%     60.0     ---
Natixis                       ---      61.0     ---
Newedge                       ---      60.5     ---
Nomura Securities Intl.       ---      58.7     ---
Nord/LB                       ---      60.0     83.0
OSK Group/DMG                 ---      61.5     ---
Pierpont Securities           ---      61.0     ---
PineBridge Investments        0.6%     61.5     ---
PNC Bank                     -1.0%     62.0     ---
Raiffeisenbank International  ---      61.5     85.0
Raymond James                -1.2%     60.5     ---
RBC Capital Markets           ---      61.0     ---
RBS Securities Inc.           ---      60.8     ---
Scotia Capital                ---      61.1     ---
Societe Generale             -0.9%     61.5     85.0
Standard Chartered            ---      61.0     ---
State Street Global Markets  -1.2%     61.8     83.9
Stone & McCarthy Research     0.4%     60.2     ---
TD Securities                 ---      62.0     ---
Thomson Reuters/IFR           0.8%     61.0     ---
UBS                          -0.4%     61.5     88.0
UniCredit Research            ---      60.0     ---
Union Investment              ---      60.5     ---
University of Maryland       -0.5%     60.0     81.5
Wells Fargo & Co.            -0.6%     60.5     ---
WestLB AG                    -0.5%     60.2     ---
Westpac Banking Co.           0.0%     62.0     ---
Wrightson ICAP               -0.8%     61.5     ---
================================================================

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

Press spacebar to pause and continue. Press esc to stop.

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.