Manufacturing in Philadelphia Area Grows More Than Forecast
Manufacturing in the Philadelphia region expanded in October for the first time in six months, a sign the industry may be starting to stabilize.
The Federal Reserve Bank of Philadelphia’s general economic index rose to 5.7 from minus 1.9 in September, a report today showed. A reading of zero is the dividing line between expansion and contraction. The median forecast of 61 economists surveyed by Bloomberg was for an increase to 1.
The report, contrasting with data showing New York-area factories shrank for the third straight month, indicates that a pillar of the recovery is starting to regain its footing. Gains in confidence and household wealth mean consumer spending may help cushion manufacturing at a time when business investment and exports are hurt by slowing global growth and uncertainty about U.S. tax changes.
“Manufacturing has troughed in terms of the declines in activity,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “As the recession in Europe becomes less severe, it will take the pressure off exports. There is some demand” in the U.S.
Other reports today showed more Americans than forecast filed applications for unemployment benefits last week, consumer confidence rose to a six-month high and the index of leading indicators climbed more than forecast in September.
Jobless claims increased by 46,000 to 388,000 in the week ended Oct. 13, reflecting an unwinding of adjustments for seasonal swings at the start of a quarter, from a revised 342,000 the prior period that was the lowest since February 2008, according to Labor Department data.
The Bloomberg Consumer Comfort Index rose to minus 34.8 in the week ended Oct. 14, the highest level since April, from minus 38.5 the previous week. The monthly expectations gauge improved to minus 7 in October, the best reading since May.
The Conference Board’s gauge of the outlook for the next three to six months increased 0.6 percent last month after a revised 0.4 percent drop in August that was bigger than initially reported, the New York-based group said. Economists projected the gauge would climb 0.2 percent, according to the median estimate in a Bloomberg survey.
The Philadelphia Fed’s overall index isn’t composed of the individual measures, one reason some economists consider it a gauge of sentiment among manufacturers. Manufacturing makes up about 12 percent of the U.S. economy.
The breakdown of today’s Philadelphia Fed data was less encouraging than the headline reading. The employment index decreased to minus 10.7, the lowest reading since September 2009, from minus 7.3. The new orders measure dropped to minus 0.6, the fifth contraction in the past six months, from a reading of 1 in September.
The shipments gauge climbed to minus 0.2 from minus 21.2. Its inventory index rose to 2.1 from minus 21.7.
The index of prices paid rose to 19 from 8, while a gauge of prices received increased to 5.4 from minus 0.2.
Factory managers in the region also become less optimistic about the future. The gauge of the outlook for six months from now dropped to 21.6 this month from 41.2 in September.
Figures from the New York Fed on Oct. 15 showed the so- called Empire State index rose to minus 6.2 this month from September’s minus 10.4 reading.
Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing. The ISM report is due on Nov. 1.
The automobile industry remains a source of growth. Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008, according to data from Ward’s Automotive Group. Chrysler Group LLC and General Motors Co. (GM) reported gains.
Businesses restrained by weakening overseas growth include Alcoa Inc. (AA), the largest U.S. aluminum producer. The New York- based company cut its forecast for global consumption of the metal on slowing Chinese demand.
“We do see a slight slowdown in some regions in end- markets, and the main driver for this is China,” Chairman and Chief Executive Officer Klaus Kleinfeld said on a conference call with analysts this month.
Manufacturing also is stabilizing at the national level, a report showed this week. Industrial production, or output at factories, mines and utilities, rose 0.4 percent in September after a 1.4 percent drop in August that was the biggest since March 2009, according to Fed data issued Oct. 16.
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