U.S. Manufacturing Probably Grew at Slowest Pace in Eight Months
Manufacturing probably expanded in June at the slowest pace in eight months, indicating the industry may provide less support for the U.S. expansion, economists said before a report today.
The Institute for Supply Management’s factory index fell to 52 from 53.5 the prior month, according to the median estimate of 60 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Construction spending increased in May for a third month, separate figures may show.
Assembly lines may slow as consumers temper purchases of vehicles and other goods, while companies limit investments on new equipment. At the same time, export markets for manufacturers like DuPont Co. (DD) and Steelcase Inc. (SCS) may be more difficult as Europe struggles with a debt crisis and some Asian economies weaken.
“We’ll be moving forward at a more sedate pace,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The momentum is fading for exports, which used to be a big plus for manufacturing. There’s not enough strength in domestic demand.”
The Tempe, Arizona-based ISM’s figures are due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 50.5 to 53.1.
At the same time, the Commerce Department may report construction spending climbed 0.2 percent in May, according to the Bloomberg survey median. Projections ranged from a drop of 0.8 percent to a gain of 1 percent. The data may show that housing is stabilizing with the help of record-low mortgage rates and cheaper properties.
Bolstered Recovery
Manufacturing accounts for about 12 percent of the economy and has been at the forefront of the recovery that began in June 2009.
The latest regional reports reinforce a recent slowdown in the industry. Manufacturing in the Philadelphia area shrank in June at the fastest pace in almost a year, while New York-region factories expanded at the slowest rate in seven months.
A Commerce Department report on durables orders last week showed demand for non-defense capital goods excluding aircraft climbed 1.6 percent in May after a 1.4 percent decrease, helping allay concern that business spending will falter.
Slower hiring and an unemployment rate exceeding 8 percent may keep restraining household spending, which accounts for about 70 percent of the economy. Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed.
Europe Concern
Europe also remains a concern for manufacturers. An index of executive and consumer sentiment in the 17-nation euro area slumped in June to the lowest since October 2009, adding to signs the economy fell back into a recession, figures showed last week.
Executives at Wilmington, Delaware-based DuPont said that while growth in North America is holding up, the third-largest U.S. chemical maker is concerned about a slowdown in China and Germany’s dependence on exports.
“My number-one worry is what will happen in Europe over the next six to nine months,” Diane Gulyas, group vice president of DuPont’s performance-materials segment, said on a conference call with analysts on June 14.
Steelcase, a Grand Rapids, Michigan-based maker of office furniture, said first-quarter sales fell in most major markets in the region that includes Europe, Middle East and Africa.
Takes Toll
“Uncertainty in the global economy continues to take its toll on specific parts of our business,” Chief Financial Officer David Sylvester said on a conference call on June 21.
The global slowdown helps explain why manufacturing shares have declined more than the broader market. The Standard & Poor’s Supercomposite Machinery Index (S15MACH), which includes Caterpillar Inc. and Deere & Co., has fallen 11 percent since April 30, compared with a 2.6 percent decline in the S&P 500 (SPX) measure.
The economy expanded 1.9 percent in the first quarter following a 3 percent gain in the prior three months, revised data showed last week.
To combat flagging growth, Federal Reserve policy makers said they are ready to take more steps should the U.S. expansion slacken.
Fed officials said in a policy statement on June 20 that they expect “economic growth to remain moderate over coming quarters and then to pick up very gradually.”
Bloomberg Survey
================================================================
ISM Construct
Manu Spending
Index MOM%
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Date of Release 07/02 07/02
Observation Period June May
----------------------------------------------------------------
Median 52.0 0.2%
Average 52.0 0.1%
High Forecast 53.1 1.0%
Low Forecast 50.5 -0.8%
Number of Participants 60 39
Previous 53.5 0.3%
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4CAST Ltd. 52.0 -0.8%
ABN Amro Inc. 52.0 ---
Action Economics 53.0 0.2%
Aletti Gestielle 52.5 ---
Ameriprise Financial Inc 52.0 0.4%
Analytical Synthesis --- 0.4%
Bantleon Bank AG 52.1 ---
Barclays 51.0 0.1%
BMO Capital Markets 52.5 0.3%
BNP Paribas 51.5 0.0%
BofA Merrill Lynch Resear 51.0 -0.1%
Briefing.com 51.5 0.2%
Capital Economics 52.0 -0.3%
Citi 51.0 0.0%
ClearView Economics 51.8 0.4%
Comerica Inc 53.0 0.1%
Commerzbank AG 52.0 ---
Credit Agricole CIB 51.5 ---
Credit Suisse 51.5 ---
Desjardins Group 52.0 -0.3%
Deutsche Bank Securities 52.0 0.3%
Deutsche Postbank AG 51.5 ---
First Trust Advisors 53.0 0.1%
FTN Financial 51.5 0.3%
HSBC Markets 52.0 0.3%
Hugh Johnson Advisors 53.0 0.4%
IDEAglobal 51.0 -0.3%
IHS Global Insight 51.5 0.2%
Informa Global Markets 52.7 0.0%
ING Financial Markets 53.0 0.3%
Insight Economics 53.0 -0.1%
Intesa Sanpaulo 52.0 0.2%
J.P. Morgan Chase 52.0 0.0%
Janney Montgomery Scott L 53.0 ---
Jefferies & Co. 52.0 0.3%
John Hancock Financial 52.8 ---
Maria Fiorini Ramirez Inc 52.0 ---
MET Capital Advisors 52.5 ---
Moody’s Analytics 53.1 -0.4%
Morgan Stanley & Co. 51.0 0.2%
National Bank Financial 52.5 ---
Natixis 52.5 ---
Nomura Securities Intl. 51.5 ---
Nord/LB 51.5 ---
OSK Group/DMG 52.6 ---
Pierpont Securities LLC 52.5 ---
PNC Bank 52.0 0.2%
Prestige Economics 52.5 ---
Raiffeisenbank Internatio 52.0 ---
RBC Capital Markets 51.0 ---
Renaissance Macro Researc 50.5 ---
Scotiabank 52.5 0.3%
SMBC Nikko Securities 51.0 -0.3%
Societe Generale 52.5 1.0%
Standard Chartered 52.0 ---
Stone & McCarthy Research 51.1 0.1%
TD Securities 51.5 0.5%
University of Maryland 52.6 0.2%
Wells Fargo & Co. 52.0 0.2%
Westpac Banking Co. 51.5 0.5%
Wrightson ICAP 53.0 -0.1%
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
U.S. Manufacturing Probably Grew at Slowest Pace in Eight Months
Ty Wright/Bloomberg
Raw tubing and pipes sit on shelves at the Memac Industries Inc. facility in Lancaster, Ohio.
Raw tubing and pipes sit on shelves at the Memac Industries Inc. facility in Lancaster, Ohio. Photographer: Ty Wright/Bloomberg
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