Manufacturing in U.S. Probably Stagnated Amid Global Slowdown

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A worker reaches for a frame to assemble glass for a double-pane window in Chicago, Illinois.

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Photographer: Tim Boyle/Bloomberg

A worker reaches for a frame to assemble glass for a double-pane window in Chicago, Illinois.

Manufacturing probably teetered between growth and contraction in August, a sign the pillar of the recovery is now struggling, according economists surveyed before a report today.

The Institute for Supply Management’s factory index was little changed at 50 compared with 49.8 in July, according to the median estimate of 70 economists surveyed by Bloomberg. A reading of 50 is the dividing line between shrinking and expanding. Spending on construction projects probably rose in July, other figures may show.

The possibility that taxes will rise and government outlays will fall if U.S. lawmakers don’t act by January may shake confidence and cause consumers and businesses to curb spending. The European debt crisis represents another stumbling block that threatens to limit orders to American factories.

“Domestic uncertainty and global weakness are both restraining growth in manufacturing,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York. “It’s a weak sector of the economy right now. We don’t expect a lot of pickup in investment activity this year.”

The Tempe, Arizona-based ISM will release the report at 10 a.m. New York time. Estimates ranged from 48.7 to 51.5. The group has said that an index (S15MACH) reading above 42.5, while signaling contraction in manufacturing, is generally consistent with an expanding overall economy. The gauge averaged 55.2 in 2011 and 57.3 in 2010.

Regional Reports

Other reports show manufacturing, which accounts for about 12 percent of the U.S. economy, weakened last month. Factory activity in the New York region contracted in August for the first time in 10 months, and production in the Philadelphia-area shrank for a fourth month, Federal Reserve reports showed.

The Institute for Supply Management-Chicago Inc.’s business barometer also fell in August, indicating manufacturer’s pace of expansion was slowing and that companies may hold the line on production until sales pick up.

“Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, output or orders” the Fed said last week in its Beige Book business survey, which reflected information collected on or before Aug. 20.

The slump at factories comes as 8.3-percent unemployment restrains consumer demand and slowing global growth reduces new businesses orders. Household spending increased at a 1.7 percent annual rate in the second quarter, the smallest advance in a year, Commerce Department data show. Corporate spending on equipment and software rose at a 4.7 percent pace in that period, the weakest since the third quarter of 2009.

Bernanke’s View

Fed Chairman Ben S. Bernanke last week said more bond purchases are an option as central bankers weigh further steps to spur growth. He said long periods of high unemployment produce “enormous suffering and waste of human talent” and also risk causing “structural damage on our economy that could last for many years.”

The production outlook also depends on whether global growth continues to cool, damping demand. The euro-area economy shrank from April to June, the third straight quarter without expansion, according to the European Union’s statistics office. China’s growth decelerated last quarter from a year earlier for the six consecutive time.

“We remain cognizant that there is the potential for further deterioration of the world economies,” Rick Cote, president and chief operating officer of watchmaker Movado Group Inc. (MOV), said during an Aug. 28 earnings call. “Our plans continue to anticipate moderate growth in North America, modest growth in Northern Europe, declines in Southern Europe and solid growth in Asia and South America.”

Manufacturing Stocks

Shares of manufacturers have fallen behind the market as a result of the weakness. The Standard & Poor’s Supercomposite Industrial Machinery Index has advanced 5.2 percent since the end of 2011, compared with a 12 percent gain in the broader S&P 500.

A healthier housing market could help manufacturers by bolstering demand for more durable goods, like furniture and refrigerators. Economists project construction spending rose 0.4 percent in July, a fourth consecutive gain, according to survey median ahead of the 10 a.m. report from the Commerce Department.

Stronger auto production would also help keep factories humming. The pace of car and light truck sales in August, data released at the end of the day, probably rose from a rate of 14.1 million units in the prior month, economists forecast.

T*

Bloomberg Survey

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ISM Construct

Manu Spending

Index MOM% ================================================

Date of Release 09/04 09/04 Observation Period Aug. July ------------------------------------------------ Median 50.0 0.4% Average 50.0 0.4% High Forecast 51.5 1.0% Low Forecast 48.7 -0.3% Number of Participants 70 43 Previous 49.8 0.4% ------------------------------------------------ 4CAST Ltd. 49.8 0.0% ABN Amro Inc. 50.5 --- Action Economics 50.5 0.5% Aletti Gestielle 50.3 --- Ameriprise Financial Inc 50.0 0.4% Banca Aletti & C spa 50.2 --- Bank of the West 50.2 0.5% Banorte-IXE 49.8 --- Bantleon Bank AG 49.9 --- Barclays 49.0 0.4% Bayerische Landesbank 50.2 --- BMO Capital Markets 50.0 0.5% BNP Paribas 49.9 --- BofA Merrill Lynch Resear 49.0 0.6% Briefing.com 49.0 0.5% Capital Economics 50.0 0.2% Citi 50.0 0.5% ClearView Economics 49.5 0.5% Comerica Inc 49.5 0.5% Commerzbank AG 50.0 --- Credit Agricole CIB 50.4 --- Credit Suisse 50.5 --- Daiwa Securities America 51.0 0.5% DekaBank 50.5 0.3% Desjardins Group 50.0 0.5% Deutsche Bank Securities 51.0 1.0% Deutsche Postbank AG 50.2 --- DZ Bank 49.8 --- First Trust Advisors 49.9 0.2% FTN Financial 49.5 --- HSBC Markets 50.5 0.1% Hugh Johnson Advisors 49.3 --- IDEAglobal 51.0 0.5% IHS Global Insight 49.8 0.5% Informa Global Markets 49.7 0.0% ING Financial Markets 49.5 0.4% Intesa Sanpaulo 49.7 0.3% J.P. Morgan Chase 50.0 0.1% Jefferies & Co. 49.0 0.6% Landesbank Berlin 49.3 0.0% Lloyds Bank Wbm 49.7 0.5% Maria Fiorini Ramirez Inc 50.0 --- Modal Asset 48.7 --- Moody’s Analytics 50.9 0.5% Morgan Stanley & Co. 49.8 0.2% National Bank Financial 49.6 --- Natixis 49.5 --- Newedge 50.1 --- Nomura Securities Intl. 50.5 --- Nord/LB 50.0 --- OSK Group/DMG 50.5 --- Pierpont Securities LLC 50.0 --- PNC Bank 50.0 -0.3% Raiffeisenbank Internatio 49.8 --- Raymond James 50.2 0.6% RBC Capital Markets 49.2 --- Regions Financial Corp 49.6 0.3% Renaissance Macro Researc 50.0 0.3% Scotiabank 50.0 0.4% SMBC Nikko Securities 51.5 0.2% Societe Generale 50.5 0.4% Southern Polytechnic Stat 50.0 --- Stone & McCarthy Research 49.4 0.3% TD Securities 49.5 1.0% UBS 50.8 0.4% Union Investment 50.5 --- University of Maryland 50.5 0.4% Wells Fargo & Co. 50.3 0.3% Westpac Banking Co. 49.7 0.6% Wrightson ICAP 50.0 0.5% ================================================

  To contact the reporter on this story: Alex Kowalski in Washington at  akowalski13@bloomberg.net  To contact the editor responsible for this story: Christopher Wellisz in Washington at  cwellisz@bloomberg.net    
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