Manufacturing in New York Slows More Than Estimated on Raw-Material Costs
Manufacturing in New York Cools as Raw-Material Costs Jump
Daniel Acker/Bloomberg
A Pepsi delivery truck sits parked in New York, U.S. Demand from overseas markets is prompting companies like Corning Inc. and PepsiCo. Inc. to expand production and rebuild stockpiles.
A Pepsi delivery truck sits parked in New York, U.S. Demand from overseas markets is prompting companies like Corning Inc. and PepsiCo. Inc. to expand production and rebuild stockpiles. Photographer: Daniel Acker/Bloomberg
Manufacturing in the New York region expanded at a slower pace than forecast in May, showing that surging raw-material costs are hurting confidence.
The Federal Reserve Bank of New York’s general economic index fell to 11.9 from a one-year high of 21.7 in April, the central bank reported today. Measures of orders and sales fell less than the headline reading, while managers were more upbeat about the future and the group’s hiring index climbed to the second-highest level on record.
Growing demand from overseas is prompting companies like Corning Inc. (GLW) and PepsiCo Inc. to expand production and rebuild stockpiles. Gains in manufacturing will keep bolstering the economic expansion, laying the ground for further improvement in the job market.
“Higher energy prices are having secondary effects,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “Manufacturing is still going to be a plus for the economy, just not as big a plus as we’d like.”
Another report today showed confidence among homebuilders was little changed in May as executives turned more pessimistic on the outlook for sales, a sign the real estate market will keep lagging behind areas like manufacturing.
The National Association of Home Builders/Wells Fargo sentiment index held at 16 this month, data from the Washington- based group showed. A measure of sales expectations for the next six months fell to an eight-month low.
Shares Fall
Stocks were little changed, restrained by the slowdown in manufacturing and concern over Greece, which is preparing to ask for extra bailout funds. The Standard & Poor’s 500 Index was at 1,338.31 at 10:22 a.m. in New York, up less than 0.1 percent from the May 13 close.
The median forecast of 52 economists surveyed by Bloomberg News projected the Federal Reserve Bank of New York’s factory index would drop to 19.6. Estimates ranged from 15 to 25. Readings greater than zero signal growth in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.
The headline index is based on a separate question and does not reflect changes in areas like orders and employment. For that reason some economists consider it a measure of sentiment.
Rising costs may be making factory managers less optimistic. An index of prices paid climbed to 69.9 from 57.7. It was second to the July 2008 reading as the highest in data going back to 2001. The measure of prices received increased to 28 from 26.9, indicating manufacturers are trying to pass some of those increases along.
Raising Prices
A supplementary question showed the prices paid for inputs by factory managers rose by a median 5 percent in the past 12 months, exceeding the 3 percent gain in the May 2010 survey. Respondents planned to raise their own prices by a median 4 percent in the next 12 months, up from 3 percent a year earlier.
The employment measure rose to 24.7 from 23.1 in April. Only the reading reached in May 2004 was higher in the 10-year history of the data.
The Empire State gauge of new orders decreased to 17.2 this month from a one-year high of 22.3 in the prior month. A measure of shipments fell to 25.8 from 28.3.
Factory executives in the New York Fed’s district were more optimistic about the future. The gauge measuring the outlook six months from now rose to 52.7 from 47.4.
Manufacturing makes up 12 percent of the U.S. economy and about 6 percent of New York’s. Factory payrolls climbed by 29,000 workers in April for the sixth straight month of employment gains, according to Labor Department data released on May 6.
Rising Sales
Companies in the New York region are expanding. PepsiCo, the world’s largest snack-food maker, reported a 27 percent jump in first-quarter sales as new flavors helped it to appeal to customers in international markets. The Purchase, New York-based company raised its annual dividend on May 4.
Corning, a maker of glass for flat-panel televisions, expects sales will grow to $10 billion by 2014, helped by demand from China.
“We’re off to a great start in 2011,” Wendell Weeks, chairman and chief executive officer, said in a statement after the Corning, New York-based company’s annual meeting last month. He said a significant portion of growth will come from China, which is currently the world’s largest market for several of Corning’s major products.
Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management figures on U.S. manufacturing during the month. The Philadelphia report is due May 19.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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