Factories expanded in January at the weakest pace in eight months as colder-than-usual winter weather slowed demand and production, bringing a halt to recent momentum in U.S. manufacturing.
The Institute for Supply Management’s factory index decreased to 51.3, lower than the most pessimistic forecast in a Bloomberg survey of economists, from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 indicate growth, and the median estimate was 56.
Stocks plunged after the figures showed a measure of orders declined by the most since December 1980 as a number of companies said adverse weather slowed business. General Motors Co. and Ford Motor Co. said today that fewer Americans ventured out to motor-vehicle dealerships during the coldest January in two decades.
“The exceptionally cold weather and the harsh snow storms -- we all move a little bit slower in those periods and the economy is no different,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the top-ranked forecaster of the ISM index over the past two years, according to data compiled by Bloomberg. Still, “it should be some testament to the economy’s fundamental underpinnings that it was able to expand during such conditions.”
Stocks fell, sending benchmark indexes to their biggest declines since June, after the report. The Standard & Poor’s 500 Index dropped 2.3 percent to 1,741.89 at the close in New York.
“Comments from the panel this month show a mix of concern over severe weather conditions from the coldest January in many, many years,” Bradley Holcomb, chairman of the ISM’s manufacturing report, said on a conference call with reporters. “The outlook for the rest of the year remains solid. This is a blip on the screen.”
Another report showed construction spending rose at a slower pace in December, when colder weather also gripped much of the nation.
Manufacturing across the globe was mixed last month. A factory index in China dropped to a six-month low, adding to signs that government efforts to rein in excessive credit will slow growth in its economy. The Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing.
In the U.K., manufacturing grew at a slower pace than economists projected. A measure declined to 56.7 last month from 57.2 in December, Markit Economics said in a report today in London. The median forecast of 32 economists was for a reading of 57.3.
Euro-area manufacturing, boosted by factories in Germany and France, expanded faster than initially estimated last month. A Markit index increased to 54 from 52.7 in December. The group’s initial estimate was 53.9 for January.
Estimates in the Bloomberg survey of 85 economists ranged from 54 to 57.5 for the U.S. ISM index. Manufacturing accounts for about 12 percent of the economy. The factory gauge averaged 53.9 for all of 2013.
The ISM’s new orders measure plunged to 51.2 last month from 64.4 in December. A gauge of production dropped to the lowest since May, while an index of order backlogs fell to a five-month low.
The slowdown in U.S. demand prompted American producers to add fewer workers last month. The group’s measure of factory employment fell to the weakest level since June.
The inventory gauge decreased to its lowest since December 2012.
Two areas that have been sources of strength for the U.S. economy are showing signs of fading as temperatures dropped in much of the country the last two months. Motor vehicle sales in January slowed to a 15.16 million annualized pace, the weakest in three months, from 15.3 million at the end of 2013, according to data from Ward’s Automotive Group.
Extreme weather affected January sales in the Midwest, Southeast and East for Ford and caused some disruptions in production, Joe Hinrichs, president of the Americas, said in a Jan. 30 interview with Bloomberg.
Sales of cars and light trucks fell 12 percent for GM and 7.5 percent for Ford from January last year, according to company statements today. Toyota Motor Corp. said its sales fell 7.2 percent, compared with the average estimate for a decline of 2.7 percent. Deliveries climbed more than analysts’ average estimates for Chrysler Group LLC and Nissan Motor Co.
Analysts had projected that the industry would eke out a sales increase in what Commodity Weather Group LLC said was the coldest January in the contiguous U.S. states since 1994.
Ford, the maker of the top-selling pickups in the U.S., plans to increase production by 15 percent at one of its factories building F-Series Super Duty trucks as demand continues to grow. Ford will boost annual capacity by about 55,000 vehicles at its Kentucky truck plant starting April 1, a sign of the “underlying the strength of the economy,” Hinrichs said.
Construction has also been affected by inclement conditions. Spending was little changed in December as gains in residential building offset a setback among state and local government agencies, a report from the Commerce Department also showed today. Outlays rose 0.1 percent after climbing 0.8 percent in November.
Private spending on homebuilding increased 2.6 percent in December to reach the highest level since June 2008, according to the report. Government outlays dropped 2.3 percent, paced by a 2.7 percent decrease at the state and local level that was the biggest in a year.
For all of 2013, construction spending advanced 4.8 percent to $898.4 billion, the most since 2009. Federal expenditures slumped 14.2 percent, the biggest decline in comparable records dating back to 1993.