Manufacturing picked up in April after consumer spending surged the prior month, showing the U.S. economy is poised to lift off in the second quarter.
The Institute for Supply Management’s factory index rose to 54.9, the strongest so far this year, from 53.7 in March, figures from the Tempe, Arizona, group showed today. Readings above 50 indicate expansion. Household purchases climbed in March by the most since August 2009, according to Commerce Department data.
Sales are increasing at automakers such as General Motors Co., while Whirlpool Corp. (WHR) is among those optimistic demand will pick up as the weather warms. The data bear out the view of Federal Reserve policy makers who yesterday looked beyond weak growth in the first quarter and projected the world’s largest economy would speed up.
“The economy is coming back very quickly,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, who accurately projected the gain in the ISM. “We’re seeing better data pretty much across the board.”
Stocks ended little changed, with the Dow Jones Industrial Average falling from a record, ahead of tomorrow’s jobs report. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,883.68 at the close in New York.
U.S. factories weren’t the only ones gaining momentum. U.K. manufacturing grew more than economists forecast in April as output surged to an eight-month high and exports increased, according to data from Markit Economics in London. The news was less upbeat in Asia as a purchasing managers’ index (COMFCOMF) showed China’s manufacturing grew less than analysts estimated.
The median forecast of 84 economists surveyed by Bloomberg projected the U.S. ISM index would rise to 54.3. Estimates ranged from 53 to 56.2. Seventeen of 18 industries reported growth in April, the most in three years. Manufacturing accounts for about 12 percent of the economy.
Household purchases, which make up about 70 percent of the economy, climbed 0.9 percent in March after a 0.5 percent gain in February that was larger than previously estimated, Commerce Department figures showed. The median forecast of 77 economists in a Bloomberg survey called for a 0.6 percent gain.
Spending on durable goods, including automobiles, surged 2.7 percent after adjusting for inflation, the biggest gain in four years. Outlays on services also increased, led by health care and utilities as temperatures remained colder than usual.
Cars and light trucks sold at a 16.3 million annualized rate in March that was the fastest since May 2007, according to data from Ward’s Automotive Group. GM today said its April sales increased 6.9 percent from a year earlier, exceeding analysts’ estimates of a 5.7 percent gain.
One reason consumers are loosening their purse strings is that they are becoming more confident. The Bloomberg Consumer Comfort Index rose to 37.9 for the week ended April 27, a level surpassed just once since January 2008, according to another report today. A measure of whether it’s a good time to make purchases reached its highest point since November 2007 and the outlook on personal finances was the best since April 2008.
A report yesterday showed harsh winter weather stalled U.S. growth in the first quarter as slumps in business investment and home construction weighed on the economy.
GDP grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed.
Whirlpool is among companies projecting sales will improve amid “growth in U.S. housing for the full year, increased demand related to the replacement cycle of appliances and significant improvement in discretionary demand that we are currently seeing improving,” Marc Bitzer, president of North America at the Benton Harbor, Michigan-based company said in an April 25 earnings call.
Whirlpool reported first-quarter sales of $4.36 billion, surpassing analysts’ estimates, as a rebound in March made up for soft demand in January and February caused by “extreme weather.”
Fed officials dialed back their unprecedented bond-buying yesterday as they looked beyond the first-quarter slowdown. Citing positive economic momentum and improved consumer spending, the central bank pared monthly asset buying to $45 billion, its fourth-straight $10 billion cut.
“Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions,” the Federal Open Market Committee said in a statement following a meeting in Washington. “Household spending appears to be rising more quickly.”
A pickup in hiring would help sustain the gains in purchases. The ISM group’s factory employment gauge increased to a four-month high, today report showed.
Payrolls probably climbed by 215,000 in April, which would be the best performance since November, Labor Department data is projected to show tomorrow, according to the median estimate of a Bloomberg survey of economists. The jobless rate probably declined to 6.6 percent from 6.7 percent, the survey projects.
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