Manufacturing, Spending Probably Gained: U.S. Economy Preview

Manufacturing probably accelerated for a fourth straight month in February, consumer confidence improved and Americans picked up the pace of spending a month earlier, economists said reports this week will show.

The Institute for Supply Management’s factory index rose to an eight-month high of 54.5 from 54.1 in January, according to the median estimate of 62 economists surveyed by Bloomberg News. Readings above 50 signal growth. Consumer purchases in January rose 0.4 percent, the most in four months, another report may show.

Manufacturers remain at the forefront of the more than two- year-old expansion, aided by corporate investment in equipment, inventory rebuilding and a pickup in the auto industry. Risks to the industry that accounts for about 12 percent of the economy include higher fuel costs and a slowdown in Europe linked to its debt crisis.

“The manufacturing outlook has been relatively bright,” Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York, said before the report. “Domestic demand seems to be contributing to the strength in manufacturing. A wild card is whether the rise in gas prices will start to affect spending.”

The price of a gallon of regular unleaded gasoline climbed to $3.65 as of Feb. 23 from a 10-month low of $3.21 on Dec. 20, according to AAA, the nation’s largest automobile association.

Monetary Policy

Federal Reserve Chairman Ben S. Bernanke will give his semiannual monetary policy report to Congress this week and he may repeat that the central bank is likely to keep low interest rates in place through late 2014 to ensure the economy keeps growing. He testifies before House lawmakers on Feb. 29 and the following day to the Senate Banking Committee.

The Tempe, Arizona-based ISM is due to report its manufacturing index on March 1. Estimates ranged from 53.7 to 55.8.

Personal spending probably rose in January after little change in December and 0.1 percent gains in each of the previous two months, according to the survey median before the Commerce Department report the same day. Incomes (PITLCHNG) probably climbed 0.5 percent for a second month, the biggest back-to-back gains since February-March 2011.

Faster job growth is boosting the outlook for spending and production. Payrolls grew by 243,000 workers in January, and the jobless rate fell to 8.3 percent, the lowest since February 2009, the Labor Department said Feb. 3.

Job and income gains helped boost confidence. The Conference Board’s 10 a.m. release on Feb. 28 may show its index climbed to 63 this month from 61.1.

Factory Jobs

Factory payrolls jumped by 50,000, the most in a year, and the industry’s workers put in the longest workweek on average since January 1998, the Labor Department monthly data showed.

Manufacturing, which sparked the early stages of the recovery as growing overseas economies propelled exports, has recovered after a lull brought on by Japan’s March 2011 earthquake.

Another report from the Commerce Department on Feb. 28 may show orders for durable goods fell 1 percent in January after a 3 percent gain, which may reflect a decrease in demand for Boeing Co. aircraft. Orders excluding transportation equipment probably were unchanged after a 2.2 percent gain, economists forecast.

Business investment remains a bright spot. Corporate spending on equipment and software rose at a 5.2 percent annual rate from October through December. While slower than the prior period’s 16 percent gain, a surge in orders in December indicates capital spending will strengthen in the current quarter.

Caterpillar Production

“For many products demand has been above our ability to produce,” Mike DeWalt, director of investor relations at Caterpillar Inc. (CAT), said on a Jan. 26 conference call with analysts. “We have invested in Caterpillar factories in the United States and around the world to increase production.”

Even with planned increases in capital expenditures this year, “we’re still very tight on many products and are currently quoting extended delivery times for them,” he said.

Machinery and equipment makers have outperformed the broader stock market. The Standard & Poor’s Supercomposite Machinery Index (S15MACH) has gained 20 percent so far this year, compared with an 8.6 percent increase for the S&P 500 Index. (SPX)

Vehicle demand should also drive production. Cars and light trucks sold at a 14.1 million annual rate last month, according to industry data. Excluding a surge in August 2009 tied to the government’s “cash-for-clunkers” program, it was the strongest month since May 2008.

Housing remains the economy’s weakest link. The S&P/Case- Shiller (SPCS20) index of home prices in 20 cities may have fallen in December by 3.6 percent from a year earlier after a 3.7 percent drop in the 12 months through November, economists forecast the Feb. 28 data to show.

                        Bloomberg Survey

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                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
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Pending Homes MOM%        2/27      Jan.     -3.5%      1.0%
Durables Orders MOM%      2/28      Jan.      3.0%     -1.0%
Durables Ex-Trans MOM%    2/28      Jan.      2.2%      0.0%
Case Shiller Monthly YOY  2/28      Dec.     -3.7%     -3.6%
Consumer Conf Index       2/28      Feb.      61.1      63.0
GDP Annual QOQ%           2/29      4Q S      2.8%      2.8%
Personal Consump. QOQ%    2/29      4Q S      2.0%      2.0%
Pers Inc MOM%             3/1       Jan.      0.5%      0.5%
Pers Spend MOM%           3/1       Jan.      0.0%      0.4%
ISM Manu Index            3/1       Feb.      54.1      54.5
Vehicle Sales Mlns        3/1       Feb.      14.1      14.0
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To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net

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

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