Manufacturing in U.S. Probably Cooled on Less Capital Spending

Photographer: Daniel Acker/Bloomberg

An employee reassembles a die for a punch press at a factory in Illinois. Close

An employee reassembles a die for a punch press at a factory in Illinois.

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Photographer: Daniel Acker/Bloomberg

An employee reassembles a die for a punch press at a factory in Illinois.

Manufacturing in the U.S. probably expanded in October at a slower pace, indicating the industry is providing little thrust for the expansion, economists said before a report today.

The Institute for Supply Management’s factory index was little changed at 51 last month from 51.5 in September, according to the median estimate of 88 economists surveyed by Bloomberg. A reading of 50 is the dividing line between expansion and contraction. Construction spending rebounded in September, another report today may show.

Factories are receiving fewer orders as companies curb investing in new equipment ahead of $607 billion in government spending cuts and tax increases that may kick in next year. While manufacturers such as Cummins Inc. (CMI) are feeling the effects of that so-called fiscal cliff, they are also struggling with a weaker global economy that’s reduced demand for U.S. exports.

“Companies still lack confidence in the recovery,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “As long as that’s the case, you’re not going to invest in capital expenditures and you’re not going to invest in human resources.”

The Tempe, Arizona-based ISM will release the manufacturing report at 10 a.m. New York time. Economists’ estimates range from 49.2 to 52.5. The group has said that a reading above 42.5 generally is consistent with an expanding overall economy. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Photographer: Daniel Acker/Bloomberg

Factories are receiving fewer orders as companies curb investing in new equipment ahead of $607 billion in government spending cuts and tax increases that may kick in next year. Close

Factories are receiving fewer orders as companies curb investing in new equipment ahead... Read More

Close
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Photographer: Daniel Acker/Bloomberg

Factories are receiving fewer orders as companies curb investing in new equipment ahead of $607 billion in government spending cuts and tax increases that may kick in next year.

Some regional data on manufacturing, which accounts for about 12 percent of the economy, have also signaled weakness.

Regional Reports

The MNI Chicago Report’s business activity gauge unexpectedly contracted in October for a second month. In the New York area, manufacturing shrank for a third straight period as shipments and employment declined. In the Philadelphia region, manufacturing expanded for the first time in six months.

Shares of manufacturers have trailed the broader market. The Standard & Poor’s Supercomposite Industrial Machinery Index has advanced 9 percent this year, compared with a 12.3 percent gain in the broader S&P 500.

The global economy is struggling. The euro-area jobless rate climbed to a record in September as the debt crisis eroded investor and business confidence. Unemployment in the 17-nation region rose to 11.6 percent, the highest since the data series started in 1995, from 11.5 percent in August, the Luxembourg-based European Union statistics office reported yesterday.

The debt crisis has pushed at least five euro nations into recessions, forcing companies to cut costs to help weather the turmoil. Economic confidence in the region fell in October.

‘Significantly Weaker’

“Clearly we are experiencing significantly weaker demand in many of our largest markets,” Thomas Linebarger, chairman and chief executive officer at Cummins, said on a conference call yesterday. Columbus, Indiana-based Cummins is a maker of heavy-truck engines. “Unfortunately, there is also a high degree of uncertainty about the direction of the global economy, and at this point in time, it is not clear when demand will improve.”

American companies are also concerned about the economic implications of the fiscal cliff, which will be reached in January unless Congress acts to avoid it.

“The industry is experiencing slower-than-expected new order rates,” Linebarger said. “End users are reluctant to proceed with new purchases, uncertainty about the U.S. economy and concerns about possible impacts from the fiscal cliff.”

At the same time, a rebounding housing market is helping sustain the expansion in the world’s largest economy. Confidence among U.S. homebuilders in October climbed for a sixth month. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41, the highest since June 2006, from 40 in September, according to figures from the Washington-based group.

Economists project a Commerce Department report today at 10 a.m. will show construction spending climbed 0.7 percent in September after a 0.6 percent decrease.

Bloomberg Survey ================================================================ Consumer ISM Construct Conf Manu Spending Index Index MOM% ================================================================ Date of Release 11/01 11/01 11/01 Observation Period Oct. Oct. Sept. ---------------------------------------------------------------- Median 73.0 51.0 0.7% Average 72.6 51.2 0.6% High Forecast 76.0 52.5 1.3% Low Forecast 65.0 49.2 -0.4% Number of Participants 79 88 48 Previous 70.3 51.5 -0.6% ---------------------------------------------------------------- 4CAST 75.0 51.5 1.0% ABN Amro --- 52.0 --- Action Economics 71.0 51.0 0.7% Aletti Gestielle 73.0 51.0 --- Ameriprise Financial 72.5 51.5 0.4% Banca Aletti 72.0 50.5 --- Bank of the West 70.0 51.0 0.8% Bank of Tokyo-Mitsubishi 74.0 51.5 0.5% Banorte-IXE 73.3 51.0 --- Bantleon Bank AG 72.5 50.7 --- Barclays 73.0 51.5 0.2% Bayerische Landesbank 73.1 51.2 --- BBVA 71.8 51.0 0.8% BMO Capital Markets 72.0 51.5 0.7% BNP Paribas 74.0 50.5 0.8% BofA Merrill Lynch 72.0 50.5 0.5% Briefing.com 73.0 50.5 1.0% Capital Economics 74.0 51.5 0.7% CIBC World Markets --- 51.7 --- Citi 75.0 52.0 0.0% ClearView Economics --- 52.0 -0.2% Comerica 69.0 50.0 0.5% Commerzbank AG 73.0 51.9 --- Credit Agricole CIB 74.8 52.0 --- Credit Suisse 75.0 51.5 1.0% Daiwa Securities America 71.0 51.5 0.5% Danske Bank 74.3 52.0 --- DekaBank 73.0 50.5 0.8% Desjardins Group 73.5 52.3 0.8% Deutsche Bank Securities 65.0 52.0 0.0% Deutsche Postbank AG 72.0 50.5 --- Exane 72.0 50.8 --- First Trust Advisors 75.0 51.3 0.7% FTN Financial 71.6 52.1 --- Goldman, Sachs & Co. 74.0 50.5 1.3% Hammer Partners SA 72.5 51.5 --- Helaba 72.5 51.0 --- High Frequency Economics 71.5 50.0 0.5% HSBC Markets 73.0 51.5 0.4% Hugh Johnson Advisors 73.1 52.2 --- IDEAglobal 68.0 52.0 0.5% IHS Global Insight 70.0 50.5 -0.4% Informa Global Markets 72.0 50.7 --- ING Financial Markets 74.5 52.0 0.7% Insight Economics 74.0 51.5 0.5% Intesa Sanpaulo 76.0 51.2 0.7% J.P. Morgan Chase 73.0 51.0 0.5% Janney Montgomery Scott 74.9 50.7 --- Jefferies & Co. 72.0 52.0 0.3% John Hancock Financial 71.0 50.0 --- Landesbank Berlin 73.5 49.2 0.8% Landesbank BW 76.0 50.7 --- Lloyds Bank 70.0 50.8 --- Maria Fiorini Ramirez --- 51.5 --- MET Capital Advisors --- 52.0 --- Modal Asset --- 49.5 --- Moody’s Analytics 71.0 51.7 0.4% Morgan Stanley & Co. 75.0 51.5 0.7% National Bank Financial 72.0 51.0 --- Natixis 72.0 52.0 --- Nomura Securities 73.0 50.7 --- Nord/LB 72.0 51.0 --- OSK Group/DMG --- 51.0 --- Oxford Economics 70.5 51.8 --- Pierpont Securities 73.0 51.0 --- PineBridge Investments 71.0 50.5 1.0% PNC Bank 76.0 52.0 1.0% Prestige Economics --- 52.0 --- Raiffeisenbank International 72.0 50.6 --- Raymond James 72.0 51.0 0.8% RBC Capital Markets 71.0 50.0 --- RBS Securities 75.5 50.8 --- Regions Financial 73.3 50.6 0.8% Renaissance Macro Research 71.0 50.5 --- Scotiabank 73.0 52.5 0.5% SMBC Nikko Securities 73.0 51.0 0.7% Societe Generale 73.5 52.5 0.5% Southern Polytechnic State --- 52.0 --- Standard Chartered 72.5 52.5 --- Stone & McCarthy 68.5 50.4 1.0% TD Securities 74.0 50.5 1.0% UBS 73.0 50.5 0.3% UniCredit Research 70.0 50.5 --- Union Investment 71.0 50.5 --- University of Maryland 71.0 51.0 0.7% Wells Fargo & Co. 72.0 51.8 0.5% Westpac Banking Co. 74.5 49.5 1.0% Wrightson ICAP 74.0 51.0 0.2% ================================================================

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

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

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