Philadelphia Area’s Manufacturing Expands at Slowest Pace in Seven Months
Manufacturing in Philadelphia Fed Region Almost Stalls
Mike Mergen/Bloomberg
Factories may be settling down to a more balanced pace of production as the need to replenish stockpiles becomes less pressing.
Factories may be settling down to a more balanced pace of production as the need to replenish stockpiles becomes less pressing. Photographer: Mike Mergen/Bloomberg
Manufacturing in the Philadelphia region unexpectedly grew in May at the slowest pace in seven months, a sign the world’s largest economy may get less of a boost from the industry that led it out of the recession.
The Federal Reserve Bank of Philadelphia’s general economic index fell to 3.9, the weakest reading since October, from 18.5 a month earlier. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 59 economists surveyed by Bloomberg News called for an increase to 20.
Factories may be settling down to a more balanced pace of production as the need to replenish stockpiles becomes less pressing. At the same time, demand from overseas markets and U.S. corporate investment in new equipment are prompting companies like Deere & Co. (DE) and Harsco Corp. (HSC) to raise profit forecasts, a sign assembly lines will be busy in coming months.
“We’re reaching the point where manufacturing moves to a sustainable pace of growth as opposed to the early-cycle, strong pace we had earlier,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “The sector is a beneficiary of the weaker dollar. Consumer and business demand continues to improve.”
Other reports today showed sales of existing houses unexpectedly dropped in April, the number of workers filing applications for unemployment insurance fell last week, and consumer confidence dropped to a nine month low.
Housing Slump
Purchases of previously owned homes dropped 0.8 percent to a 5.05 million annual pace last month, the National Association of Realtors said. A 5.2 million rate was the median projection in a Bloomberg News survey and the April figure was less than the most pessimistic forecast. The median sales price declined from a year earlier and 37 percent of transactions were of distressed dwellings.
Jobless claims declined by 29,000 to 409,000 in the week ended May 14, the fewest in a month, Labor Department figures showed. The median estimate of economists in a Bloomberg News survey called for a drop to 420,000.
The decrease makes it more likely that the April surge in applications was caused by temporary events rather than deterioration in the labor market.
Confidence Erodes
The Bloomberg Consumer Comfort Index declined to minus 49.4 in the period to May 15, the worst reading since August, from the prior week’s minus 46.9. A gauge of personal finances plunged to the weakest level since October 2009, and a monthly measure of economic expectations held at a seven-month low.
Stocks erased earlier gains after the reports. The Standard & Poor’s 500 Index was little changed at 1,341.14 at 10:26 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 3.21 percent from 3.18 percent late yesterday.
Estimates for the Philadelphia Fed Index of 59 economists surveyed ranged from 10 to 28.
The bank’s new orders measure fell to 5.4 from 18.8 the prior month. The shipments gauge dropped to 6.5 from 29.1.
The index of prices paid decreased to 48.3 from 57.1 the prior month, while its gauge of prices received fell to 16.8 from 27.5.
The one positive from the report was an increase in hiring. The employment index increased to 22.1 from 12.3 a month ago.
Outlook Wanes
The group’s index measuring the outlook for the next six months fell to 16.6, the lowest since January 2009, from 33.6 in April.
The Philadelphia Fed’s overall index isn’t composed of the individual measures, one reason some economists consider it a gauge of sentiment among manufacturers.
The report was more negative that a similar measure from the Federal Reserve Bank of New York issued earlier this week. The figures from the New York Fed showed factories expanded in May at a slower pace than forecast, while measures of orders and sales dropped less than the headline reading, and managers were more upbeat about the future.
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 data is due on June 1.
Some reports have begun to reflect the shortage of parts after the March earthquake and tsunami in Japan, a weakness economists say may be temporary. Industrial production unexpectedly stalled in April as the Fed said supply disruptions led to a plunge in automobile output.
Growing Exports
Manufacturing, which makes up about 12 percent of the economy, is getting a boost from expanding world trade. Exports jumped 4.6 percent in March, the biggest gain since 1994, as U.S. sales to customers in South and Central America reached a record, according to Commerce Department data.
Philadelphia-area businesses benefiting from overseas demand include Harsco, a provider of railway maintenance and engineered products, which this month announced a new order for track maintenance in Saudi Arabia and a four-year extension of a services contract in the U.K. The Camp Hill Pennsylvania-based company in April increased its annual profit forecast.
Deere, the world’s largest farm-equipment maker, yesterday raised its fiscal 2011 earnings forecast and said sales of large farm machinery are rising, particularly in the U.S., Canada and Brazil. Still, the Moline, Illinois-based company expects disruptions linked to Japan’s earthquake will trim revenue.
-- With assistance from Chris Middleton in Washington. Editor: Carlos Torres
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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