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Chicago Business Activity Caps Best Three Months Since 2011

Business activity in the U.S. expanded December, capping the strongest three months in more than two years and adding to signs manufacturing gains will be sustained into 2014.

While the MNI Chicago Report business barometer declined to 59.1 from 63 in November, numbers greater than 50 signal expansion. The index averaged 62.7 over the past three months, the highest since the period ended May 2011.

Manufacturing, which makes up about 12 percent of the economy, has been expanding as demand for automobiles, construction materials and appliances keep factory assembly lines humming. A pickup in business investment and economic improvement overseas would help sustain gains and support economic growth into the new year.

“We’ve had a pretty good updraft in the manufacturing sector in the fourth quarter,” Mike Englund, chief economist at Action Economics LLC in Boulder, said before the report. “We’re assuming that we’ll see continued outperformance for factories.”

The median forecast of 40 economists in a Bloomberg survey was 60.8. Estimates ranged from 58 to 65.

Home Prices

Another report today showed home prices in 20 cities rose in October from a year ago by the most in more than seven years, signaling the real-estate rebound will keep bolstering household wealth in 2014. The S&P/Case-Shiller index of property prices in 20 cities climbed 13.6 percent from October 2012, the biggest 12-month gain since February 2006, after a 13.3 percent increase in the year ended in September.

The Chicago group’s gauge of new orders decreased to 60.7 this month from 68.8 in November. The production index declined to 57.9 from 64.3 last month, according to today’s report. A measure of employment dropped to 51.6, the lowest since April, from 60.9 the prior month.

Economists monitor the Chicago index and other regional reports for an early reading on the national manufacturing outlook. The Institute for Supply Management’s factory index, due Jan. 2, will decline to 56.9 from a more than two-year high of 57.3 the prior month, according to the median forecast of economists surveyed by Bloomberg.

Regional Reports

Other regional factory indexes have showed expansion. The Federal Reserve Bank of New York’s general economic index rose to 0.98 in December, less than forecast, following a contraction the prior month. Readings greater than zero signal growth in New York, northern New Jersey and southern Connecticut.

Orders for durable goods climbed more than forecast in November, a Commerce Department report Dec. 24 showed, with a rise in unfilled orders.

Stronger orders “bode well” for both fourth-quarter and 2014 economic growth, Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, wrote of the durables report. It suggests “companies remain keen on increasing investment and expanding capacity as the economy and consumer sentiment improve.”

Ford Motor Co. (F) is among companies looking to expand as it produces new models.

“We also expect manufacturing, engineering and spending related costs in North America to increase next year due to the 2014 launches as well as for products and capacity actions that will be launched in later periods,” Chief Financial Officer Robert L. Shanks said in a Dec. 18 guidance call. He said the company “is, has been, and continues to be in growth mode.”

The Dearborn, Michigan-based company said this month it plans to add 5,000 jobs in the U.S. as it introduces 16 new vehicles in 2014.

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

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

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