Business Activity in U.S. Cooled in January as Orders Slowed

Business activity in the U.S. cooled in January as orders and employment slowed, indicating last quarter’s pickup in growth will not be sustained into 2012.

The Institute for Supply Management-Chicago Inc. said today its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Economists forecast the gauge would rise to 63, according to the median of 57 estimates in a Bloomberg survey.

Three consecutive readings exceeding 60 are still the strongest since early 2011, signaling manufacturing remains a mainstay of the expansion even as the world’s largest economy decelerates. Nonetheless, the risk of a recession in Europe prompted by its debt crisis and slower growth in some emerging markets pose a risk to export growth.

“We’re still getting off to a healthy start, benefiting from moderate growth in U.S. demand,” Richard DeKaser, deputy chief economist at Parthenon Group in Boston, said before the report, who projected the index would drop to 59. “The urgency to rebuild inventories has faded even as demand is still solid.”

Economists’ projections in the Bloomberg survey ranged from 59 to 67.

Another report today showed residential real estate prices fell more than forecast in November, showing distressed properties are hampering improvement in the housing market.

Home Prices

The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October, the group said today in New York. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg survey.

Also today, the New York-based Conference Board said its confidence index fell to 61.1 from a revised 64.8 reading in the prior month. The median forecast of economists surveyed by Bloomberg called for a rise to 68. The figure was lower than the most pessimistic projection.

Stocks trimmed earlier gains after the reports. The Standard & Poor’s 500 Index climbed 0.1 percent 1,314.57 at 10:02 a.m. in New York.

The Chicago group’s employment measure fell to 54.7, the lowest level since August, from 59.2 the prior month. The production gauge decreased to 63.8 from 64.9, and the index of new orders declined to 63.6 from 67.1.

Inflation Cools

The measure of prices paid dropped to 62.4 from 63.8 and a gauge of inventories decreased to 51.6 from 52.

Manufacturing payrolls increased by 13,000 in January following a 23,000 gain the prior month, economists surveyed by Bloomberg forecast the Labor Department will say Feb. 3 in its monthly payroll report. Total payrolls rose 145,000, according to the forecasts.

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the national outlook. The Chicago group says its membership includes both manufacturers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

The ISM’s national factory index rose in January to 54.6 from a revised 53.1 the prior month, according to the median projection in a Bloomberg survey ahead of the group’s report tomorrow. Like the Chicago survey, a reading greater than 50 signals expansion.

New York-region factories expanded in January at the fastest rate in nine months and manufacturing in the Philadelphia area grew the most since October, figures from the Federal Reserve showed.

More Orders

A Commerce Department report last week showed orders in December for durable goods rose 3 percent after jumping 4.3 percent the prior month. Unfilled orders increased 1.5 percent, the biggest jump since March 2008 and a sign assembly lines would keep humming.

Caterpillar Inc. (CAT), the largest construction and mining- equipment maker, last week posted fourth-quarter earnings and forecast full-year profit that topped analysts’ estimates as demand rose for earth-moving machinery and trucks.

The Peoria, Illinois-based company will see more orders as pent-up demand is released and customers replace older products, Chief Financial Officer Ed Rapp said. With corporate balance sheets now in “pretty good shape,” companies such as Caterpillar are more willing to invest in product development, additional capacity and acquisitions, he said.

“Some of those factors that are impacting our business, our view of where things are, are going to play out in other industries as well,” Rapp said in an interview, citing automakers as an example.

The reviving auto industry, much of it located in the Midwest, is also boosting the U.S. economy. Industrywide, light- vehicle sales ran at a seasonally adjusted annualized rate of 13.5 million in December after 13.6 million the prior month, according to Autodata Corp. That’s the fastest two-month pace since the period ended in June 2008.

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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