Manufacturing in U.S. Grew at Faster Pace in March: Economy

April 2 (Bloomberg) -- Manufacturing in the U.S. expanded at a faster pace than forecast in March, a sign that the industry is weathering slower global growth. Margaret Brennan reports on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Manufacturing in the U.S. expanded at a faster pace in March, driven by gains in employment and production that signal the world’s biggest economy is underpinning global growth.

The Institute for Supply Management’s factory index climbed to 53.4 last month from 52.4 in February, the Tempe, Arizona- based group’s report showed today. Readings greater than 50 signal growth. The median forecast in a Bloomberg News survey called for a gain to 53. Another report showed spending on construction projects unexpectedly dropped in February.

Pent-up demand for autos and sustained gains in business investment on new equipment may continue to bolster American manufacturers like Deere & Co. (DE) that account for about 12 percent of the economy. The acceleration comes as manufacturing in Europe shrank for an eighth consecutive month, showing a slowdown in sales overseas remains a risk.

“We are seeing a broadening in the improvement across the economy,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, who projected the index would climb to 53.8. “I’m encouraged by the backlog of orders which remains quite supportive of stronger momentum.”

Stocks rose, sending the Dow Jones Industrial Average to its highest level since December 2007, on the improvement in manufacturing. All 10 groups in the Standard & Poor’s 500 (SPX) Index advanced, with the gauge climbing 0.8 percent to 1,419.04 at the close in New York. The yield on the benchmark 10-year Treasury note fell to 2.18 percent from 2.21 percent on March 30.

Less Construction

Growth in manufacturing is helping make up for weakness in construction spending, which unexpectedly fell 1.1 percent in February, Commerce Department figures showed. The drop was the biggest in seven months and followed a 0.8 percent retreat in January that was larger than first estimated.

Forecasts for the ISM index in the Bloomberg survey of 72 economists ranged from 51.7 to 54.5. The measure averaged 55.2 in 2011 and 57.3 a year earlier. Economist estimates ranged from 51.7 to 54.5, according to a Bloomberg survey.

Fifteen of 18 industries surveyed by the purchasing managers group expanded last month, the most since April 2011. The ISM’s production gauge climbed to a three-month high and its measure of employment rose to the highest level since June.

Manufacturers were adding to payrolls in anticipation that bookings will pick up, Bradley Holcomb, chairman of the ISM’s factory survey said in a conference call. Order backlogs rose last month, matching the January level as the highest in almost a year.

Global Manufacturing

Elsewhere, euro-region manufacturing contracted again in March, adding to signs the 17-country economy kept shrinking in the first quarter. The region’s factory gauge, also based on a survey of purchasing managers, fell to 47.7 from 49 in February, London-based Markit Economics said today.

U.K. manufacturing unexpectedly accelerated in March to the fastest in 10 months, according to another report. The gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, rose to 52.1 from a revised 51.5 in February, Markit said.

Readings from China were mixed, with an index from the logistics federation and the National Bureau of Statistics issued yesterday showing a gain to a one-year high. In contrast, a gauge from HSBC Holdings Plc and Markit Economics showed manufacturing contracting and export orders falling.

Auto Demand

American manufacturing has been bolstered in recent months by stronger sales of automobiles. Light-vehicle sales in March, set for release tomorrow, may have run at a 14.6 million seasonally adjusted annual rate, according to the average estimate of analysts surveyed by Bloomberg. The pace was 15 million a month earlier, the strongest since February 2008, according to Ward’s Automotive Group statistics.

“As the economy continues to strengthen, more of the pent- up demand will be released,” Don Johnson, U.S. sales chief for General Motors Co., said today on Bloomberg Television’s “In The Loop With Betty Liu.” Sales of GM’s Chevrolet Volt rose to more than 2,000 in the month, he said. “This month will be a very good month for Volt.” The model’s previous best was 1,529 in December.

A government report last week showed orders for non-defense capital goods excluding aircraft -- a proxy for business investment in items such as computers, engines and communications gear --increased 1.2 percent in February.

Business Investment

Business spending on equipment and software climbed at a 7.5 percent pace in the final three months of 2011 after a 16.2 percent surge in the prior quarter, according to the latest Commerce Department data on gross domestic product.

Deere, the world’s largest maker of agricultural equipment, said March 1 that it would invest $70 million to expand tractor production in Waterloo, Iowa.

While companies are investing in new equipment, a stronger labor market is giving households the means and confidence to purchase big-ticket items, benefiting companies like motor-home maker Winnebago Industries Inc. (WGO)

“We’re beginning to see positive signs that the economy is improving,” Randy Potts, chief executive officer of the Forest City, Iowa-based company, said on a March 15 conference call. “Consumer confidence has been trending higher and the jobless rate is improving.”

Federal Reserve Chairman Ben S. Bernanke said last week that while he was encouraged by the recent decline in the unemployment rate, a further reduction will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,” he said.

Recent “better news” on the U.S. economy has also included strength in manufacturing, Bernanke said. The improvement could contribute to higher consumer confidence and lead to a self-sustaining recovery, he said. “We haven’t seen that in a persuasive way yet,” Bernanke said in a speech in Arlington, Virginia.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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