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Manufacturing in U.S. Probably Cooled on Less Capital Spending

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Manufacturing in U.S. Probably Cooled on Less Capital Spending
Factories are receiving fewer orders as companies curb investing in new equipment ahead of $607 billion in government spending cuts and tax increases that may kick in next year. Photographer: Daniel Acker/Bloomberg

Nov. 1 (Bloomberg) -- Manufacturing in the U.S. probably expanded in October at a slower pace, indicating the industry is providing little thrust for the expansion, economists said before a report today.

The Institute for Supply Management’s factory index was little changed at 51 last month from 51.5 in September, according to the median estimate of 88 economists surveyed by Bloomberg. A reading of 50 is the dividing line between expansion and contraction. Construction spending rebounded in September, another report today may show.

Factories are receiving fewer orders as companies curb investing in new equipment ahead of $607 billion in government spending cuts and tax increases that may kick in next year. While manufacturers such as Cummins Inc. are feeling the effects of that so-called fiscal cliff, they are also struggling with a weaker global economy that’s reduced demand for U.S. exports.

“Companies still lack confidence in the recovery,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “As long as that’s the case, you’re not going to invest in capital expenditures and you’re not going to invest in human resources.”

The Tempe, Arizona-based ISM will release the manufacturing report at 10 a.m. New York time. Economists’ estimates range from 49.2 to 52.5. The group has said that a reading above 42.5 generally is consistent with an expanding overall economy. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Some regional data on manufacturing, which accounts for about 12 percent of the economy, have also signaled weakness.

Regional Reports

The MNI Chicago Report’s business activity gauge unexpectedly contracted in October for a second month. In the New York area, manufacturing shrank for a third straight period as shipments and employment declined. In the Philadelphia region, manufacturing expanded for the first time in six months.

Shares of manufacturers have trailed the broader market. The Standard & Poor’s Supercomposite Industrial Machinery Index has advanced 9 percent this year, compared with a 12.3 percent gain in the broader S&P 500.

The global economy is struggling. 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.

‘Significantly Weaker’

“Clearly we are experiencing significantly weaker demand in many of our largest markets,” Thomas Linebarger, chairman and chief executive officer at Cummins, 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.”

American companies are also concerned about the economic implications of the fiscal cliff, which will be reached in January unless Congress acts to avoid it.

“The industry is experiencing slower-than-expected new order rates,” Linebarger said. “End users are reluctant to proceed with new purchases, uncertainty about the U.S. economy and concerns about possible impacts from the fiscal cliff.”

At the same time, a rebounding housing market is helping sustain the expansion in the world’s largest economy. Confidence among U.S. homebuilders in October climbed for a sixth month. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41, the highest since June 2006, from 40 in September, according to figures from the Washington-based group.

Economists project a Commerce Department report today at 10 a.m. will show construction spending climbed 0.7 percent in September after a 0.6 percent decrease.

                  Bloomberg Survey

================================================================
                          Consumer      ISM  Construct
                              Conf     Manu  Spending
                             Index    Index     MOM%
================================================================

Date of Release              11/01    11/01    11/01
Observation Period            Oct.     Oct.    Sept.
----------------------------------------------------------------
Median                        73.0     51.0     0.7%
Average                       72.6     51.2     0.6%
High Forecast                 76.0     52.5     1.3%
Low Forecast                  65.0     49.2    -0.4%
Number of Participants          79       88       48
Previous                      70.3     51.5    -0.6%
----------------------------------------------------------------
4CAST                         75.0     51.5     1.0%
ABN Amro                      ---      52.0     ---
Action Economics              71.0     51.0     0.7%
Aletti Gestielle              73.0     51.0     ---
Ameriprise Financial          72.5     51.5     0.4%
Banca Aletti                  72.0     50.5     ---
Bank of the West              70.0     51.0     0.8%
Bank of Tokyo-Mitsubishi      74.0     51.5     0.5%
Banorte-IXE                   73.3     51.0     ---
Bantleon Bank AG              72.5     50.7     ---
Barclays                      73.0     51.5     0.2%
Bayerische Landesbank         73.1     51.2     ---
BBVA                          71.8     51.0     0.8%
BMO Capital Markets           72.0     51.5     0.7%
BNP Paribas                   74.0     50.5     0.8%
BofA Merrill Lynch            72.0     50.5     0.5%
Briefing.com                  73.0     50.5     1.0%
Capital Economics             74.0     51.5     0.7%
CIBC World Markets            ---      51.7     ---
Citi                          75.0     52.0     0.0%
ClearView Economics           ---      52.0    -0.2%
Comerica                      69.0     50.0     0.5%
Commerzbank AG                73.0     51.9     ---
Credit Agricole CIB           74.8     52.0     ---
Credit Suisse                 75.0     51.5     1.0%
Daiwa Securities America      71.0     51.5     0.5%
Danske Bank                   74.3     52.0     ---
DekaBank                      73.0     50.5     0.8%
Desjardins Group              73.5     52.3     0.8%
Deutsche Bank Securities      65.0     52.0     0.0%
Deutsche Postbank AG          72.0     50.5     ---
Exane                         72.0     50.8     ---
First Trust Advisors          75.0     51.3     0.7%
FTN Financial                 71.6     52.1     ---
Goldman, Sachs & Co.          74.0     50.5     1.3%
Hammer Partners SA            72.5     51.5     ---
Helaba                        72.5     51.0     ---
High Frequency Economics      71.5     50.0     0.5%
HSBC Markets                  73.0     51.5     0.4%
Hugh Johnson Advisors         73.1     52.2     ---
IDEAglobal                    68.0     52.0     0.5%
IHS Global Insight            70.0     50.5    -0.4%
Informa Global Markets        72.0     50.7     ---
ING Financial Markets         74.5     52.0     0.7%
Insight Economics             74.0     51.5     0.5%
Intesa Sanpaulo               76.0     51.2     0.7%
J.P. Morgan Chase             73.0     51.0     0.5%
Janney Montgomery Scott       74.9     50.7     ---
Jefferies & Co.               72.0     52.0     0.3%
John Hancock Financial        71.0     50.0     ---
Landesbank Berlin             73.5     49.2     0.8%
Landesbank BW                 76.0     50.7     ---
Lloyds Bank                   70.0     50.8     ---
Maria Fiorini Ramirez         ---      51.5     ---
MET Capital Advisors          ---      52.0     ---
Modal Asset                   ---      49.5     ---
Moody’s Analytics             71.0     51.7     0.4%
Morgan Stanley & Co.          75.0     51.5     0.7%
National Bank Financial       72.0     51.0     ---
Natixis                       72.0     52.0     ---
Nomura Securities             73.0     50.7     ---
Nord/LB                       72.0     51.0     ---
OSK Group/DMG                 ---      51.0     ---
Oxford Economics              70.5     51.8     ---
Pierpont Securities           73.0     51.0     ---
PineBridge Investments        71.0     50.5     1.0%
PNC Bank                      76.0     52.0     1.0%
Prestige Economics            ---      52.0     ---
Raiffeisenbank International  72.0     50.6     ---
Raymond James                 72.0     51.0     0.8%
RBC Capital Markets           71.0     50.0     ---
RBS Securities                75.5     50.8     ---
Regions Financial             73.3     50.6     0.8%
Renaissance Macro Research    71.0     50.5     ---
Scotiabank                    73.0     52.5     0.5%
SMBC Nikko Securities         73.0     51.0     0.7%
Societe Generale              73.5     52.5     0.5%
Southern Polytechnic State    ---      52.0     ---
Standard Chartered            72.5     52.5     ---
Stone & McCarthy              68.5     50.4     1.0%
TD Securities                 74.0     50.5     1.0%
UBS                           73.0     50.5     0.3%
UniCredit Research            70.0     50.5     ---
Union Investment              71.0     50.5     ---
University of Maryland        71.0     51.0     0.7%
Wells Fargo & Co.             72.0     51.8     0.5%
Westpac Banking Co.           74.5     49.5     1.0%
Wrightson ICAP                74.0     51.0     0.2%
================================================================

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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