Chicago Index Increases in Sign Manufacturing Is Stabilizing
Business activity in the U.S. expanded in July, adding to signs that a recovery in manufacturing will support economic growth through the second half of the year.
The MNI Chicago Report’s business barometer increased to 52.3 from 51.6 in June. A reading above 50 signals expansion. The median forecast of 51 economists surveyed by Bloomberg called for 54.
Manufacturing, which makes up about 12 percent of the economy, is picking up steam after cuts in federal government spending and higher taxes weighed on activity earlier this year. Factory stabilization, supported by purchases such as vehicles and housing, indicates producers are seeing improved demand after a softer second quarter.
“You’re seeing more domestic demand, and the economy is still definitely in a general recovery,” Scott Brown, chief economist for Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “Typically you get a lot of little things adding small amounts, and that’s positive.”
Estimates (CHPMINDX) in the Bloomberg survey ranged from 52 to 56. The index averaged 54.6 in 2012 and 62.8 in 2011.
Other reports today showed the economy picked up in the second quarter and companies hired more workers than forecast this month.
Gross domestic product rose at a 1.7 percent annualized rate after a 1.1 percent gain the prior quarter, Commerce Department figures showed. The median forecast of 85 economists surveyed by Bloomberg called for a 1 percent advance for last quarter. Consumer spending, the biggest part of the economy, climbed 1.8 percent after increasing 2.3 percent.
Companies boosted payrolls in July by the most this year as employers grew more optimistic demand will pick up in the second half of the year, another report showed. The 200,000 increase in employment was more than projected and followed a revised 198,000 gain in June that was higher than initially estimated, according to data from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a July advance of 180,000.
Today’s Chicago report showed the employment gauge decreased to 56.6 from 57.8 in the month before. The production measure eased to 53.6 from 57.
The index of new orders declined to 53.9 from 54.6 in June, while the gauge measuring order backlog climbed to 42.9 from 38.4.
Economists monitor the Chicago index and other regional reports for an early read on the national manufacturing outlook. The Chicago group includes goods producers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth, the group has said.
Data earlier this month showed manufacturing in the New York and Philadelphia regions expanded more than forecast in July, while industrial production climbed in June. A separate report last week showed the backlog of durable goods orders to factories jumped 2.1 percent last month, the most since the end of 2007.
Factories are getting help from rising consumer confidence, which is bolstering household demand for manufactured products as Americans’ views of their finances and job market improve.
The Bloomberg Consumer Comfort Index climbed to a more than five-year high this month, presaging the six-year high by the Thomson Reuters/University of Michigan index of consumer sentiment. The Conference Board’s Consumer Confidence declined this month, tempered by growing concern over higher borrowing costs and gasoline prices, a report showed yesterday.
General Motors Co. (GM) posted adjusted second-quarter earnings that beat analysts’ estimates as “a healthy dose of pent-up demand” helped support its launch of the Chevrolet Silverado and GMC Sierra models, Chief Executive Officer Dan Akerson said on a July 25 conference call.
GM outsold Toyota Motor Corp. for the first time in six quarters during the period ended June, highlighting the resurgence of U.S. automakers. The 2.48 million vehicles that Toyota and its subsidiaries sold during the quarter, based on monthly figures reported this month, was shy of the 2.49 million that Detroit-based GM disclosed earlier this month.
Automakers that typically would be closing shop this month for annual retooling are either shortening or canceling the shutdowns because of increased demand. Cars and light trucks sold at a 15.9 million seasonally adjusted annualized rate in June, the strongest since November 2007.
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