May 2 (Bloomberg) -- Manufacturing expanded faster than forecast in April, driven by gains in exports and inventories that are keeping the industry at the forefront of the U.S. economic expansion.
The Institute for Supply Management’s factory index fell to 60.4 last month from 61.2 in March, the Tempe, Arizona-based group said today. Readings greater than 50 signal expansion and the measure has exceeded 60 for four consecutive months, the best performance since 2004.
Demand from emerging economies like China, the need to replenish stockpiles and investment in new equipment may keep benefitting manufacturers, including Caterpillar Inc. and Cummins Inc. Federal Reserve policy makers last week said the expansion was “proceeding at a moderate pace,” buoyed by stronger business spending.
“The overall manufacturing sector remains healthy,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. The industry “is helping to sustain an ongoing economic expansion,” he said.
The median forecast of 78 economists surveyed by Bloomberg News called for a drop to 59.5. Estimates ranged from 57.5 to 62.
Another report showed construction spending rose more than forecast in March as companies put up factories and power plants, while home improvement outlays also rebounded. The 1.4 percent gain was the biggest since April 2010 and followed a revised 2.4 percent decrease in February that was larger than previously estimated, Commerce Department figures showed.
Also today, results from a Federal Reserve survey showed banks made borrowing easier in the first quarter as they forecast the economy will improve. Looser standards for business loans reflected more competition among banks, while some financial institutions “also pointed to a more favorable or less uncertain economic outlook,” the Fed said in its quarterly poll of senior loan officers.
The median estimate of economists in a Bloomberg survey projected a 0.4 percent increase.
Stocks dropped, pulling the Standard & Poor’s 500 Index down from its highest level since June 2008, as a slump in commodity shares dimmed optimism spurred by the death of Osama bin Laden. The 500 Index fell 0.2 percent to 1,361.22 at the 4 p.m. close in New York. Treasuries were little changed.
European manufacturing growth accelerated more than forecast in April, driven by higher production in Germany and France, a separate report showed. A gauge of manufacturing in the 17-nation euro area rose to 58 from 57.5 in March, London-based Markit Economics said in an e-mailed report today. That’s above an initial estimate of 57.7 on April 19.
The ISM’s export index climbed 6 points in April to 62, and its inventory gauge rose to 53.6 from 47.4 in March. Measures of production, new orders and employment eased.
“A lot of this growth in manufacturing is driven by export demand and the weaker dollar,” Norbert Ore, chairman of the ISM survey, said in a conference call from Atlanta. The ISM figures are showing no effect from supply-chain constraints linked to Japan’s earthquake and tsunami in March, even as some automakers had “to make some changes” in production schedules due to the disaster, he said.
The index of prices paid rose to 85.5 from 85. A measure of supplier deliveries decreased to 60.2 from 63.1.
The measure of orders waiting to be filled jumped to 61, matching an almost six-year high reached in February 2010.
Caterpillar, the world’s largest maker of construction equipment, posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in China, India and Brazil and other developing countries.
“We expect that the pace of world economic growth will support continued recovery in the key industries we serve,” Doug Oberhelman, chief executive officer at Caterpillar, said in a statement last week.
Demand from countries like China and Brazil is spurring U.S. exports of machinery and consumer goods. Sales overseas reached the highest level on record in January before falling in February for the first time in six months, according to Commerce Department figures.
Columbus, Indiana-based Cummins, a maker of diesel engines, more than doubled its first-quarter income from a year earlier and boosted its forecasts for sales and profit this year.
“Our first-quarter results reflect continued strong growth in key international markets, especially China, India and Brazil,” Chief Executive Officer Tim Solso said in a conference call last week. “We are seeing significant growth in demand for our products and services in nearly every geographic market we serve.”
The business spending that helped lead the economy out of recession is being helped this year in part by President Barack Obama’s compromise at the end of last year with congressional Republicans on taxes. Companies can depreciate 100 percent of investments in capital equipment in 2011.
“Household spending and business investment in equipment and software continue to expand,” Fed policy makers said last week after their policy meeting.
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