Manufacturing Probably Bolstered U.S. Expansion in February

U.S. industrial production probably rose in February for a third month in the last four, reinforcing manufacturing’s role as a pillar of the expansion, economists said before a report today.

Output at factories, mines and utilities climbed 0.6 percent after a 0.1 percent decrease in January, according to the median forecast in a Bloomberg News survey. Other data may show inflation excluding food and energy was contained, factories in the Philadelphia region expanded and an index of the economy’s outlook climbed for the eighth month.

Rising orders at companies like Texas Instruments Inc. (TXN) show factories are bolstering a recovery that the Federal Reserve this week said was on a “firmer footing.” Central bankers also said measures of underlying inflation remain “subdued,” even as gains in volatile food and fuel costs threaten to leave consumers with less to spend on other goods.

“Manufacturing activity looks pretty good,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. “We’re seeing an abatement of deflationary pressures more than any inflation pickup. The middle class is being squeezed by the higher gasoline and food prices.”

The Fed’s industrial production report is due at 9:15 a.m. in Washington. Economists’ estimates ranged from gains of 0.3 percent to 1.2 percent.

At 8:30 a.m., the Labor Department may report the consumer price index rose 0.4 percent in February for the third consecutive month, according to the Bloomberg survey median. Economists’ estimates ranged from 0.2 percent to 0.6 percent.

Core Prices

So-called core prices, which exclude food and fuel, likely rose 0.1 percent last month after a 0.2 percent gain in January, economists projected. Compared with a year earlier, the core CPI probably rose 1 percent for a second month.

The Conference Board’s leading economic indicators index, which measures the outlook for the next three to six months, jumped 0.9 percent in February after rising 0.1 percent, according to the Bloomberg survey median. The report is due at 10 a.m.

One of the components of the leading index is initial jobless claims, which will be released by the Labor Department at 8:30 a.m. The report may show fewer Americans filed claims for unemployment benefits last week, economists forecast.

Fed policy makers this week affirmed their plan to buy $600 billion of Treasuries through June while raising their assessment of the economy. They said the labor market appears to be “improving gradually” and that household spending and business investment “continue to expand.”

Philadelphia Gauge

Another report today may show further strength in manufacturing. The Philadelphia Fed’s general economic gauge will show factory production the region grew for the sixth straight month in March, economists said.

“We have seen orders build through the quarter,” Ron Slaymaker, vice president of investor relations for Dallas-based Texas Instruments, said on a conference call with analysts March 8. “Based upon what we’re seeing through the first two months, we would expect that orders will be up solidly compared to the fourth quarter.”

Manufacturing shares have outperformed the broader market over the past year. The Standard & Poor’s 500 Supercomposite Machinery Index surged 37 percent in the 12 months through yesterday, compared with a 8.4 percent gain in the S&P 500.

Companies are facing higher costs they may have trouble passing on to consumers. Data yesterday showed producer prices climbed 1.6 percent in February, the most since June 2009, reflecting gains in fuel and the biggest jump in food costs since 1974. The core PPI, which excludes food and fuel, rose 0.2 percent, less than half the 0.5 percent gain in January.

Broadest Measure

The consumer price index is the broadest of three price measures issued by the Labor Department. The cost of goods imported into the U.S. rose 1.4 percent last month, led by commodities.

“The economic recovery is on a firmer footing,” Fed officials said in a statement after their March 15 meeting. While “the recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation,” these effects are expected to be “transitory,” they said.

                         Bloomberg Survey
==============================================================
                               CPI     Core  Initial     Ind.
                                        CPI   Claims    Prod.
                              MOM%     MOM%   ,000’s     MOM%
==============================================================

Date of Release              03/17    03/17    03/17    03/17
Observation Period            Feb.     Feb.   12-Mar     Feb.
--------------------------------------------------------------
Median                        0.4%     0.1%      388     0.6%
Average                       0.4%     0.1%      387     0.6%
High Forecast                 0.6%     0.2%      400     1.2%
Low Forecast                  0.2%     0.0%      375     0.3%
Number of Participants          77       75       44       76
Previous                      0.4%     0.2%      397    -0.1%
----------------------------------------------------------------
4CAST Ltd.                    0.5%     0.1%      385     0.7%
ABN Amro Inc.                 0.4%     0.2%      390     0.8%
Action Economics              0.4%     0.1%      385     0.6%
Aletti Gestielle              0.5%     0.1%      390     0.7%
Ameriprise Financial          0.5%     0.2%      385     0.7%
Banesto                       ---      ---      ---      0.5%
Bank of Tokyo- Mitsubishi     0.5%     0.2%      394     0.6%
Bantleon Bank AG              0.3%     0.1%     ---      0.8%
Barclays Capital              0.5%     0.1%      380     0.6%
Bayerische Landesbank         0.4%     0.2%     ---      0.4%
BBVA                          0.4%     0.1%      380     0.7%
BMO Capital Markets           0.4%     0.1%      385     0.6%
BNP Paribas                   0.3%     0.1%      380     0.6%
BofA Merrill Lynch            0.4%     0.1%      385     0.4%
Briefing.com                  0.3%     0.1%      380     0.5%
Capital Economics             0.4%     0.1%     ---      0.6%
CIBC World Markets            0.3%     0.1%     ---      0.5%
Citi                          0.4%     0.1%      390     0.5%
ClearView Economics           0.4%     0.2%     ---      0.8%
Credit Agricole CIB           0.4%     0.1%     ---      0.7%
Credit Suisse                 0.4%     0.1%      390     1.0%
Danske Bank                   0.3%     0.1%     ---      0.6%
DekaBank                      0.4%     0.1%     ---      0.5%
Desjardins Group              0.4%     0.1%      395     0.6%
Deutsche Bank Securities      0.3%     0.2%     ---      0.6%
Deutsche Postbank AG          0.4%     0.1%     ---      0.6%
Fact & Opinion Economics      0.4%     0.2%      375     0.7%
First Trust Advisors          0.4%     0.1%      391     1.0%
FTN Financial                 0.5%     0.2%     ---      ---
Goldman, Sachs                0.4%     0.1%     ---      0.7%
Helaba                        0.3%     0.1%      390     0.7%
Hugh Johnson Advisors         0.3%     0.2%     ---      0.7%
Ibersecurities                ---      ---      ---      0.5%
IDEAglobal                    0.5%     0.1%      390     0.6%
Informa Global Markets        0.5%     0.1%      390     0.7%
ING Financial Markets         0.5%     0.2%      377     1.2%
Intesa-SanPaulo               0.5%     0.1%     ---      0.7%
ITG Investment Research       0.4%     0.1%     ---      ---
J.P. Morgan Chase             0.5%     0.2%      390     0.9%
Janney Montgomery Scott       0.2%     0.1%     ---      0.5%
Jefferies & Co.               0.4%     0.2%      388     ---
Landesbank Berlin             0.5%     0.2%     ---      1.0%
Landesbank BW                 0.4%     0.1%      387     0.6%
Maria Fiorini Ramirez         0.4%     0.1%      390     0.6%
MET Capital Advisors          0.4%     ---      ---      0.6%
MF Global                     0.5%     0.1%      390     0.3%
Mizuho Securities             0.3%     0.0%      400     0.4%
Moody’s Analytics             0.4%     0.2%      390     0.8%
Morgan Keegan                 0.3%     0.2%     ---      0.4%
Morgan Stanley                0.5%     0.1%     ---      0.7%
National Bank Financial       0.3%     0.1%     ---      0.6%
Natixis                       0.3%     0.2%     ---      0.8%
Newedge                       0.4%     0.1%     ---      0.8%
Nomura Securities             0.5%     ---      ---      0.7%
Nord/LB                       0.3%     0.1%     ---      0.7%
OSK Group/DMG                 0.4%     0.1%     ---      0.7%
Parthenon Group               0.3%     0.2%      387     0.7%
Pierpont Securities           0.5%     0.1%      387     0.4%
PineBridge Investments        0.3%     0.1%      379     0.8%
PNC Bank                      0.4%     0.2%     ---      0.8%
Raiffeisenbank International  0.4%     0.1%     ---      0.5%
Raymond James                 0.4%     0.1%      385     0.7%
RBC Capital Markets           0.5%     0.1%      380     0.6%
RBS Securities                0.4%     0.1%      390     0.4%
Scotia Capital                0.4%     0.1%      389     0.5%
Societe Generale              0.5%     0.2%      380     0.6%
Standard Chartered            0.5%     0.2%     ---      0.5%
State Street Global Markets   0.4%     0.1%      385     0.7%
Stone & McCarthy Research     0.5%     0.1%      395     0.8%
TD Securities                 0.3%     0.1%      375     0.6%
Thomson Reuters/IFR           0.5%     0.1%      390     0.5%
UBS                           0.5%     0.1%      385     0.7%
UniCredit Research            0.3%     0.1%     ---      0.6%
Union Investment              0.5%     0.2%     ---      0.5%
University of Maryland        0.4%     0.1%      385     0.5%
Wells Fargo & Co.             0.4%     0.1%     ---      0.6%
WestLB AG                     0.4%     0.1%     ---      0.6%
Westpac Banking Co.           0.3%     0.0%      390     0.8%
Wrightson ICAP                0.6%     0.1%      390     0.5%
==============================================================

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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