Philadelphia-Area Manufacturing Increases

Manufacturing in the Philadelphia region expanded at faster pace in January as employment picked up and factories grew more optimistic about business in the next six months.

The Federal Reserve Bank of Philadelphia’s general economic index increased to a three-month high of 7.3 from 6.8 in December, according to a report released today. Economists surveyed by Bloomberg News forecast the gauge would rise to 10.3. Readings greater than zero indicate expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Household and business demand, along with leaner inventories, are encouraging factories to bring on more employees and boost hours worked. At the same time, a possible recession in Europe and a weaker euro pose a risk to U.S. manufacturers’ overseas sales.

“The U.S. economy should grow moderately and that would support decent gains in manufacturing,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. “How much that will continue is a question as we really don’t know yet the extent of the European downturn.”

Estimates in the Bloomberg survey of 56 economists ranged from 7 to 16.8.

Another report today showed jobless claims plunged by 50,000 to 352,000 last week, the lowest level since April 2008, according to Labor Department figures. The decline was the biggest since September 2005, when claims first surged then slumped in the aftermath of Hurricane Katrina.

Stocks Gain

Stocks gained after the claims figures, with the Standard & Poor’s 500 Index climbing 0.3 percent to 1,311.34 at 10:23 a.m. in New York. The yield on the benchmark 10-year Treasury note rose to 1.94 percent from 1.9 percent late yesterday.

The cost of living was little changed in December for a second month, the Labor Department also reported. The unchanged reading in the consumer-price index was less than the 0.1 percent gain median forecast of economists surveyed by Bloomberg. Costs excluding food and energy rose 0.1 percent last month as projected.

The Commerce Department said builders began work on fewer homes in December, reflecting a slump in multi-family unit construction. Home starts dropped 4.1 percent to a 657,000 annual rate.

The Philadelphia Fed bank’s employment index increased to 11.6, the highest level since May, from 11.5 in the prior month. The new orders measure fell to 6.9 from 10.7 in December. A measure of the average workweek climbed to 5 from 2.8.

Shipments and Prices

The shipments gauge decreased to 5.7 from 9.1 last month. The index of prices paid rose to 31.8 from 30.4 in December, and the measure of prices received advanced to 11.2 from 10.3.

The overall index isn’t composed of the individual measures, so some economists consider it a gauge of sentiment among manufacturers.

The group’s measure of the outlook for the next six months improved to 49 in January, the highest level since March, from a reading of 40 a month earlier.

The Philadelphia-area factory report follows data earlier this week from the Federal Reserve Bank of New York that showed manufacturing in the area expanded in January at the fastest pace in nine months.

Industrial Production

Industrial production in the U.S. rebounded last month, reflecting gains in demand for business equipment, automobiles and construction materials, figures from the Federal Reserve showed yesterday in Washington. Factory production, which makes up about 75 percent of total output, climbed by the most in a year.

Last year “proved to be a challenging environment, most notably with the difficulties in the European region,” Roger Wood, president and chief executive officer at Dana Holding Corp. (DAN), said Jan. 10 at an auto industry conference in Detroit.

The head of the Maumee, Ohio-based maker of truck axles and frames said Europe will also play an important role this year. “Looking forward, we continue to foresee a mixed global outlook. We expect slow growth in North America and much better growth in both Asia and South America. We believe that Europe will continue to lag.”

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

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