Manufacturing Growth in U.S. Defies China Slowdown: Economy

U.S. manufacturing expanded in November at the fastest pace in five months, buttressing other reports this week that signal the economy is picking up as 2011 comes to an end.

The Institute for Supply Management’s factory index increased to 52.7 last month from 50.8 in October, the Tempe, Arizona-based group said today. Readings above 50 indicate expansion, and economists surveyed by Bloomberg News projected a gain to 51.8. Construction spending climbed for a third month in October and jobless claims increased, other data showed.

The manufacturing figure was punctuated by gains in orders and production in the same month that consumer confidence rebounded and companies beefed up their payrolls. Corporate purchases of new equipment and stronger holiday spending may help sustain U.S. factories after reports today showed the industry shrank in China and Europe.

“We are an oasis,” said Chris Low, chief economist at FTN Financial in New York. “The rest of the world might slow when the U.S. slows, but the U.S. doesn’t necessarily slow down when the rest of the world slows.”

Stocks declined after the biggest three-day gain in the Standard & Poor’s 500 Index since March 2009. The S&P 500 fell 0.2 percent to 1,244.59 at the close in New York. The yield on the benchmark 10-year Treasury note rose to 2.10 percent from 2.07 percent late yesterday.

Bullard on Economy

James Bullard, president of the Federal Reserve Bank of St. Louis, said recent economic reports point to stronger economic growth, and policy makers shouldn’t rush to ease further.

“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” Bullard said in an interview in New York today at the Bloomberg Hedge Fund Conference hosted by Bloomberg Link. “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”

Consumer confidence in November posted the biggest monthly gain since April 2003, figures from the Conference Board showed Nov. 29. Private employment rose 206,000 last month, the strongest increase this year, according to a report yesterday from ADP Employer Services.

While the U.S. economy may be picking up, global growth is cooling and remains a risk to American manufacturers.

China and Europe

A purchasing managers’ index compiled by the China Federation of Logistics and Purchasing dropped in November to the weakest level since February 2009. Separate reports showed slowing retail sales and an industrial slump in Australia, which relies on China as its biggest export customer.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 46.4 from 47.1 in October, London-based Markit Economics said today. That’s the lowest since July 2009.

Estimates for the U.S. manufacturing index from 82 economists ranged from 50.2 to 53. While 50 is the midway point between expansion and contraction in the industry, a reading above 42.5 generally indicates an expansion in the overall economy.

Construction and Claims

Construction spending climbed 0.8 percent, reflecting gains in housing and commercial projects, the Commerce Department said. Initial claims for unemployment benefits rose by 6,000 to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, according to the Labor Department.

Today’s ISM report showed the measures of production and new orders climbed at the fastest rate since April. Factory inventories shrank, while a gauge of customer stockpiles climbed to the highest since March 2009.

The group’s employment index showed fewer factories in November added workers than a month earlier. Manufacturing payrolls rose by 9,000 last month after a 5,000 gain the prior month, according to economists surveyed by Bloomberg before the Labor Department’s payroll report tomorrow.

An approaching deadline to qualify for a larger government tax credit may be contributing to an increase in businesses demand for equipment. The Obama administration’s tax compromise allows companies to depreciate 100 percent of investment in capital outlays in 2011 and 50 percent in 2012.

Deere & Co. (DE)

Growth in emerging markets is helping sustain demand for U.S.-produced goods. Deere & Co., the world’s largest farm- equipment maker, on Nov. 23 reported fiscal fourth-quarter profit and forecast 2012 earnings that topped analysts’ estimates as U.S. farmers flush with cash buy more tractors and combines.

“Globally, coming off 2011’s high levels, the 2012 industry outlook is for stable commodity prices and farm income,” investor communications manager Susan Karlix said on a conference call. “We expect sound farmer confidence and strong equipment demand.”

Deere introduced a record number of products during fiscal 2011 and announced plans for six new factories in China, Brazil and India, the company said. Net sales of equipment in the U.S. and Canada rose 14 percent in the fiscal fourth quarter and 31 percent in the rest of the world.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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