U.S. Manufacturing Probably Grew at Slowest Pace in Eight Months

U.S. Manufacturing Probably Grew at Slowest Pace in Eight Months
Raw tubing and pipes sit on shelves at the Memac Industries Inc. facility in Lancaster, Ohio. Photographer: Ty Wright/Bloomberg

Manufacturing probably expanded in June at the slowest pace in eight months, indicating the industry may provide less support for the U.S. expansion, economists said before a report today.

The Institute for Supply Management’s factory index fell to 52 from 53.5 the prior month, according to the median estimate of 60 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Construction spending increased in May for a third month, separate figures may show.

Assembly lines may slow as consumers temper purchases of vehicles and other goods, while companies limit investments on new equipment. At the same time, export markets for manufacturers like DuPont Co. and Steelcase Inc. may be more difficult as Europe struggles with a debt crisis and some Asian economies weaken.

“We’ll be moving forward at a more sedate pace,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The momentum is fading for exports, which used to be a big plus for manufacturing. There’s not enough strength in domestic demand.”

The Tempe, Arizona-based ISM’s figures are due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 50.5 to 53.1.

At the same time, the Commerce Department may report construction spending climbed 0.2 percent in May, according to the Bloomberg survey median. Projections ranged from a drop of 0.8 percent to a gain of 1 percent. The data may show that housing is stabilizing with the help of record-low mortgage rates and cheaper properties.

Bolstered Recovery

Manufacturing accounts for about 12 percent of the economy and has been at the forefront of the recovery that began in June 2009.

The latest regional reports reinforce a recent slowdown in the industry. Manufacturing in the Philadelphia area shrank in June at the fastest pace in almost a year, while New York-region factories expanded at the slowest rate in seven months.

A Commerce Department report on durables orders last week showed demand for non-defense capital goods excluding aircraft climbed 1.6 percent in May after a 1.4 percent decrease, helping allay concern that business spending will falter.

Slower hiring and an unemployment rate exceeding 8 percent may keep restraining household spending, which accounts for about 70 percent of the economy. Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed.

Europe Concern

Europe also remains a concern for manufacturers. An index of executive and consumer sentiment in the 17-nation euro area slumped in June to the lowest since October 2009, adding to signs the economy fell back into a recession, figures showed last week.

Executives at Wilmington, Delaware-based DuPont said that while growth in North America is holding up, the third-largest U.S. chemical maker is concerned about a slowdown in China and Germany’s dependence on exports.

“My number-one worry is what will happen in Europe over the next six to nine months,” Diane Gulyas, group vice president of DuPont’s performance-materials segment, said on a conference call with analysts on June 14.

Steelcase, a Grand Rapids, Michigan-based maker of office furniture, said first-quarter sales fell in most major markets in the region that includes Europe, Middle East and Africa.

Takes Toll

“Uncertainty in the global economy continues to take its toll on specific parts of our business,” Chief Financial Officer David Sylvester said on a conference call on June 21.

The global slowdown helps explain why manufacturing shares have declined more than the broader market. The Standard & Poor’s Supercomposite Machinery Index, which includes Caterpillar Inc. and Deere & Co., has fallen 11 percent since April 30, compared with a 2.6 percent decline in the S&P 500 measure.

The economy expanded 1.9 percent in the first quarter following a 3 percent gain in the prior three months, revised data showed last week.

To combat flagging growth, Federal Reserve policy makers said they are ready to take more steps should the U.S. expansion slacken.

Fed officials said in a policy statement on June 20 that they expect “economic growth to remain moderate over coming quarters and then to pick up very gradually.”

                      Bloomberg Survey

                               ISM Construct
                              Manu Spending
                             Index     MOM%

Date of Release              07/02    07/02
Observation Period            June      May
Median                        52.0     0.2%
Average                       52.0     0.1%
High Forecast                 53.1     1.0%
Low Forecast                  50.5    -0.8%
Number of Participants          60       39
Previous                      53.5     0.3%
4CAST Ltd.                    52.0    -0.8%
ABN Amro Inc.                 52.0     ---
Action Economics              53.0     0.2%
Aletti Gestielle              52.5     ---
Ameriprise Financial Inc      52.0     0.4%
Analytical Synthesis          ---      0.4%
Bantleon Bank AG              52.1     ---
Barclays                      51.0     0.1%
BMO Capital Markets           52.5     0.3%
BNP Paribas                   51.5     0.0%
BofA Merrill Lynch Resear     51.0    -0.1%
Briefing.com                  51.5     0.2%
Capital Economics             52.0    -0.3%
Citi                          51.0     0.0%
ClearView Economics           51.8     0.4%
Comerica Inc                  53.0     0.1%
Commerzbank AG                52.0     ---
Credit Agricole CIB           51.5     ---
Credit Suisse                 51.5     ---
Desjardins Group              52.0    -0.3%
Deutsche Bank Securities      52.0     0.3%
Deutsche Postbank AG          51.5     ---
First Trust Advisors          53.0     0.1%
FTN Financial                 51.5     0.3%
HSBC Markets                  52.0     0.3%
Hugh Johnson Advisors         53.0     0.4%
IDEAglobal                    51.0    -0.3%
IHS Global Insight            51.5     0.2%
Informa Global Markets        52.7     0.0%
ING Financial Markets         53.0     0.3%
Insight Economics             53.0    -0.1%
Intesa Sanpaulo               52.0     0.2%
J.P. Morgan Chase             52.0     0.0%
Janney Montgomery Scott L     53.0     ---
Jefferies & Co.               52.0     0.3%
John Hancock Financial        52.8     ---
Maria Fiorini Ramirez Inc     52.0     ---
MET Capital Advisors          52.5     ---
Moody’s Analytics             53.1    -0.4%
Morgan Stanley & Co.          51.0     0.2%
National Bank Financial       52.5     ---
Natixis                       52.5     ---
Nomura Securities Intl.       51.5     ---
Nord/LB                       51.5     ---
OSK Group/DMG                 52.6     ---
Pierpont Securities LLC       52.5     ---
PNC Bank                      52.0     0.2%
Prestige Economics            52.5     ---
Raiffeisenbank Internatio     52.0     ---
RBC Capital Markets           51.0     ---
Renaissance Macro Researc     50.5     ---
Scotiabank                    52.5     0.3%
SMBC Nikko Securities         51.0    -0.3%
Societe Generale              52.5     1.0%
Standard Chartered            52.0     ---
Stone & McCarthy Research     51.1     0.1%
TD Securities                 51.5     0.5%
University of Maryland        52.6     0.2%
Wells Fargo & Co.             52.0     0.2%
Westpac Banking Co.           51.5     0.5%
Wrightson ICAP                53.0    -0.1%


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