Manufacturing in U.S. Expands at Faster Pace in October

ISM Index of U.S. Manufacturing Increased to 51.7 in October
Employee Kirk Carpenter uses a grinding wheel as he assembles the bottom of a steel pole at the Rohn Products LLC manufacturing facility in Peoria, Illinois. Photographer: Daniel Acker/Bloomberg

Manufacturing expanded more than forecast, consumer confidence rose to a four-year high and fewer Americans filed claims for unemployment benefits, pointing to resilience in the U.S. economy heading into the fourth quarter.

The Institute for Supply Management’s factory index rose to a five-month high of 51.7 in October from 51.5, the Tempe, Arizona, group reported today. The Conference Board’s sentiment index increased to 72.2, the highest since February 2008. Applications for jobless benefits fell by 9,000 to 363,000 in the week ended Oct. 27, the Labor Department said in Washington.

“We’re getting a sense of stabilization, we’re no longer slipping,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “This should ease concerns that we were feeling two or three months ago about the state of the economy.”

Stocks rose on optimism the world’s largest economy is weathering a global slowdown and the prospect of $607 billion in federal spending cuts and tax increases set to kick in early next year unless Congress acts. At the same time, a report tomorrow on the labor market, the last before the presidential election, may show employers are keeping a tight rein on hiring.

The Standard & Poor’s 500 Index gained 1 percent to 1,425.70 12:46 p.m. in New York. The yield on the 10-year Treasury note rose to 1.72 percent from 1.69 percent late yesterday.

Elsewhere, indexes from Britain to Sweden showed manufacturing contracted in October, while factory output expanded in China for the first time in three months, underscoring the diverging speeds of the global recovery.

Auto Production

“In North America, our outlook has improved” for light vehicle production, Timothy Manganello, chairman and chief executive officer at BorgWarner Inc., an auto parts maker based in Auburn Hills, Michigan, said on an Oct. 31 conference call with analysts. ‘Strong year-to-date sales, better credit conditions, and healthy inventory levels have improved our outlook.”

At the same time, “our outlook for Europe has weakened,” he said. Light-vehicle volumes may be down 13 percent in the fourth quarter, more than the 5 percent drop previously projected, Manganello said.

Jobs and the economy are central themes in the election campaign. President Barack Obama has said the economy is improving after he averted a deeper recession, while Republican challenger Mitt Romney counters that the president’s policies have prevented a faster recovery.

Atlantic superstorm Sandy may crimp growth this quarter after it left a trail of destruction in the Northeastern U.S., keeping millions of people from work, knocking out electric power and disrupting railroads, airlines and subway systems.

Auto Sales

Sandy took a toll on auto sales. General Motors Co. and Chrysler Group LLC reported October rates for industry sales that trailed analysts’ estimates. GM, the largest U.S. automaker, projected a 14.4 million industry light-vehicle sales pace.

Other reports in the U.S. today showed private employers expanded payrolls in October by the most in eight months and construction spending climbed in September to the highest level in almost three years.

The Roseland, New Jersey-based ADP Research Institute said companies expanded payrolls by 158,000 last month following a revised 114,000 gain in September.

Figures from the Labor Department tomorrow are likely to show that total payrolls, including government employees, climbed by 125,000 in October following a 114,000 increase the month before, according to the median forecast in a Bloomberg survey. The gain wasn’t enough to prevent the jobless rate from rising to 7.9 percent from 7.8 percent, another survey showed.

Consumer Sentiment

Even so, two years of payroll growth, declining gasoline prices and a nascent housing recovery are helping shore up household balance sheets and bolstering sentiment.

The Bloomberg Consumer Comfort Index was minus 34.7 in the period ended Oct. 28 after improving the previous week to minus 34.6, the highest since mid-April. The measure has been above minus 40, a level associated with recessions and their aftermath, for the past six weeks.

“We’re very pleased with what we’re seeing,” John Foraker, chief executive officer of Berkeley, California-based Annie’s Inc., an organic food company, said on an earnings teleconference on Oct. 30. “Improving consumer confidence and consumers feeling a little bit better about their pocketbook is also helping.”

Economists’ Projections

Economists forecast an October reading of 51 for the ISM factory index, according to the median estimate in a Bloomberg survey of 88 economists. A reading of 50 is the dividing line between growth and contraction.

The group’s measures of production and orders climbed, while a gauge of export demand was little changed.

The global economy is struggling to improve. The euro-area jobless rate climbed to a record in September as the debt crisis eroded investor and business confidence. Unemployment in the 17-nation region rose to 11.6 percent, the highest since the data series started in 1995, from 11.5 percent in August, the Luxembourg-based European Union statistics office reported yesterday.

The debt crisis has pushed at least five euro nations into recessions, forcing companies to cut costs to help weather the turmoil. Economic confidence in the region fell in October.

“Clearly we are experiencing significantly weaker demand in many of our largest markets,” Thomas Linebarger, chairman and chief executive officer at Cummins Inc., said on a conference call yesterday. Columbus, Indiana-based Cummins is a maker of heavy-truck engines. “Unfortunately, there is also a high degree of uncertainty about the direction of the global economy, and at this point in time, it is not clear when demand will improve.”


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