Manufacturing in U.S. Probably Expanded After Three-Year Low

Manufacturing in the U.S. probably expanded in December, showing the industry is stabilizing after reaching a three-year low, economists said before a report today.

The Institute for Supply Management’s factory index rose to 50.4 from November’s 49.5, which was the lowest since July 2009, according to the median forecast of 68 economists surveyed by Bloomberg. A reading of 50 marks the dividing line between expansion and contraction. Construction spending increased in November, separate figures may show.

Sustained growth in the U.S., in part due to a housing rebound, and steadying overseas markets are helping underpin factory orders and keeping manufacturing from faltering. At the same time, the threat of about $600 billion in tax increases and budget cuts was a hurdle to bigger gains in investment and production at the end of 2012.

“It’s a small improvement, which shows there isn’t extreme near-term pessimism,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. “Fiscal policy uncertainty has kept manufacturing in a zone where it’s not growing rapidly but not shrinking rapidly either.”

The Tempe, Arizona-based ISM’s figures are due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 48 to 52.

Also at 10 a.m., Commerce Department figures may show construction spending climbed 0.6 percent as record-low mortgage rates lifted property purchases and encouraged homebuilding, according to the Bloomberg survey median. Projections ranged from no change to a gain of 1.5 percent.

Manufacturing, which accounts for about 12 percent of the economy, was at the forefront of the recovery that began in June 2009.

Regional Data

Recent regional reports show a mixed picture. Manufacturing in the Philadelphia area unexpectedly expanded in December to an eight-month high, while New York-region factories shrank for the fifth straight month.

The automobile industry remains one source of growth. Cars and light trucks sold at a 15.5 million annual rate in November, the most since February 2008, boosted in part by buyers replacing cars damaged by superstorm Sandy, according to data from Ward’s Automotive Group.

Manufacturing shares have rebounded since the end of July. The Standard & Poor’s Supercomposite Machinery Index (S15MACH), which includes Caterpillar Inc. and Deere & Co., has climbed 13.2 percent, outpacing a 3.4 percent rise in the broader S&P 500 (SPX) measure.

Construction Equipment

An improving housing market also is helping manufacturers such as Illinois Tool Works Inc. (ITW), a maker of welding equipment, construction supplies and auto parts.

“On the construction side, certainly we do expect housing starts to get better from where they’ve been,” Ronald Kropp, chief financial officer of Glenview, Illinois-based Illinois Tool Works, said on a Dec. 14 conference call with analysts. “Offsetting that is more than 50 percent of our construction business is outside of the U.S., and Europe and Australia, which is a big piece of it, is still slowing or negative. So, there are some upsides on the U.S. side from residential, but offset by international.”

Nationwide, American manufacturers are more optimistic about the outlook for sales and spending this year than service providers, signaling that factories will support the economic expansion after they slumped in recent months, according to a survey released Dec. 11 by the ISM group.

Purchasing managers at factories anticipate sales will grow 4.6 percent in 2013 and business investment will increase 7.6 percent, the report showed. By comparison, service providers estimate revenue will grow 4.3 percent this year and that capital spending will rise 7 percent, the ISM said.

There are also signs that the worst of the slowdown in overseas markets is over. China’s manufacturing expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction, according to data this week.

              Bloomberg Survey
=============================================
                               ISM  Construct
                              Manu  Spending
                             Index     MOM%
=============================================
Date of Release              01/02    01/02
Observation Period            Dec.     Nov.
---------------------------------------------
Median                        50.4     0.6%
Average                       50.3     0.6%
High Forecast                 52.0     1.5%
Low Forecast                  48.0     0.0%
Number of Participants          68       39
Previous                      49.5     1.4%
---------------------------------------------
4CAST                         51.5     0.4%
ABN Amro                      49.0     ---
Action Economics              50.0     0.8%
Aletti Gestielle              50.2     ---
Bank of Tokyo-Mitsubishi      51.0     0.5%
Barclays                      50.0     0.6%
BMO Capital Markets           50.0     ---
BNP Paribas                   49.7     0.0%
BofA Merrill Lynch            49.5     0.9%
Briefing.com                  51.0     0.5%
Capital Economics             51.0     1.0%
CIBC World Markets            50.1     ---
Citi                          50.0     0.6%
ClearView Economics           49.3     0.5%
Commerzbank AG                49.5     ---
Credit Agricole CIB           50.0     ---
Credit Suisse                 50.5     ---
DekaBank                      51.0     ---
Desjardins Group              50.0     0.5%
Deutsche Bank Securities      50.0     1.0%
Deutsche Postbank AG          49.0     ---
Fact & Opinion Economics      50.1     0.6%
First Trust Advisors          49.9     0.7%
FTN Financial                 50.2     ---
Goldman, Sachs & Co.          51.0     0.7%
Helaba                        50.0     ---
HSBC Markets                  50.1     0.4%
Hugh Johnson Advisors         50.8     ---
IDEAglobal                    51.0     0.5%
IHS Global Insight            52.0     0.9%
Informa Global Markets        50.5     0.3%
ING Financial Markets         48.0     0.5%
Insight Economics             50.5     0.6%
Intesa Sanpaolo               49.7     ---
J.P. Morgan Chase             50.5     0.9%
Jefferies & Co.               51.0     0.5%
Landesbank Berlin             51.0     0.2%
Maria Fiorini Ramirez         50.0     ---
MET Capital Advisors          49.8     ---
Modal Asset                   50.5     ---
Moody’s Analytics             50.0     0.8%
Morgan Stanley & Co.          50.5     0.4%
National Bank Financial       50.5     ---
Natixis                       49.5     ---
Nomura Securities             51.8     ---
Nord/LB                       50.5     ---
OSK Group/DMG                 51.0     ---
Pierpont Securities           50.5     ---
PineBridge Investments        51.0     1.0%
Prestige Economics            50.7     ---
Raiffeisenbank International  50.5     ---
Raymond James                 51.2     0.5%
RBC Capital Markets           49.2     ---
RBS Securities                50.3     ---
Regions Financial             50.3     0.8%
Renaissance Macro Research    50.0     ---
Scotiabank                    51.0     0.5%
SMBC Nikko Securities         50.0     0.3%
Societe Generale              52.0     0.5%
Southern Polytechnic State    49.0     ---
Standard Chartered            50.5     ---
Stone & McCarthy              50.0     1.0%
TD Securities                 50.3     1.5%
UBS                           51.0     1.0%
University of Maryland        51.0     0.8%
Wells Fargo & Co.             51.0     0.3%
Westpac Banking Co.           51.0     0.8%
Wrightson ICAP                50.5     0.6%
=============================================

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

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