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U.S. ISM Manufacturing Index Rose in September

Photographer: Luke Sharrett/Bloomberg

A factory worker installs rivets into the roof of an Airstream Inc. RV travel trailer on the production line at the company's assembly plant in Jackson Center, Ohio, on Sept. 25, 2013. Close

A factory worker installs rivets into the roof of an Airstream Inc. RV travel trailer... Read More

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Photographer: Luke Sharrett/Bloomberg

A factory worker installs rivets into the roof of an Airstream Inc. RV travel trailer on the production line at the company's assembly plant in Jackson Center, Ohio, on Sept. 25, 2013.

Manufacturing unexpectedly picked up in September, showing American factories were a source of strength for the world’s largest economy before the federal government shut down.

The Institute for Supply Management’s factory index rose to 56.2, the strongest since April 2011, from 55.7 a month earlier, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 indicate growth.

Assembly lines hummed at companies from appliance and furniture makers to metals and transportation industries as the rebounds in housing and autos spurred growth. To sustain the expansion, manufacturing must now overcome the budget gridlock in Washington that has led to the first partial government shutdown in 17 years, idling about 800,000 federal employees.

“You’re beginning to see a pickup in investment and stronger construction activity from the housing recovery, and those are important,” said Paul Ashworth, chief U.S. economist at Capital Economics NA Ltd. in Toronto and the best forecaster of the ISM index over the past two years according to data compiled by Bloomberg. Still, the longer government agencies remain closed, “the more it might affect broader industry, and the private sector in general.”

Stocks rose, after the Standard & Poor’s 500 Index fell to a three-week low yesterday, as investors speculated the economic effects of the government shutdown would be limited. The S&P 500 climbed 0.8 percent to 1,695 at the close in New York.

Global Gains

Factories around the world are showing some signs of improvement. Euro-area factory output expanded in September for a third month, while confidence among Japan’s large manufacturers in the third quarter was the highest since the early stages of the global credit crisis in 2007, other reports today showed.

The median forecast in a Bloomberg survey of 84 economists projected the ISM index would fall to 55. Estimates ranged from 52.4 to 57.2. Manufacturing accounts for about 12 percent of the economy.

A partial federal shutdown will cost the U.S. at least $300 million a day in lost economic output at the start, according to Lexington, Massachusetts-based IHS Inc. While that’s a fraction of the country’s $15.7 trillion economy, and the effects probably will grow over time as consumers and businesses defer purchases and expansion plans.

The partial closing will also delay release of government economic data. August figures on construction spending due today were the first to be withheld indefinitely.

ISM Breakdown

The ISM report showed measures of production and employment expanded at a faster pace. While the orders gauge cooled, it showed the first back-to-back readings greater than 60 in more than two years.

Manufacturing is “poised for improvement -- inventories are relatively lean, you’re seeing gains in employment,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Brown projected an ISM reading of 56. At the same time, a lengthy federal government shutdown may cause “some softness in demand as businesses postpone decisions to invest.”

Sustained gains in motor vehicle sales have been a source of strength for the nation’s factories. Cars and light trucks sold at a 15.2 million annual rate in September to cap the strongest quarter since the last three months of 2007, industry figures showed today.

Auto Sales

Ford Motor Co., the second-largest U.S. automaker, and Chrysler Group LLC posted surprise sales gains for September, overcoming a quirk in the industry calendar, while others such as General Motors Co. slumped more than predicted.

The recovery in housing is also spurring demand for construction materials, furniture and appliances. Outlays for construction of single-family dwellings increased in July to the highest level since 2008.

A pickup in domestic energy production has benefitted companies such as Praxair Inc., a Danbury, Connecticut-based producer of gases and metallic and ceramic coating and powders.

“The energy infrastructure build-out due to shale gas tight oil formation, especially in the Dakotas, Texas are driving demand for tanks, trailers and associated equipment,” Vice President John M. Panikar said in a Sept. 16 conference call. Future construction of petroleum-chemical “projects in Texas and Louisiana will be strong drivers for us and we look forward to seeing those come to fruition.”

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

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

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