June 2 (Bloomberg) -- Manufacturing expanded in May at the fastest pace this year as American assembly-line workers responded to increased orders by cranking up production.
The Institute for Supply Management’s factory index rose to 55.4 from the prior month’s 54.9. Readings above 50 indicate expansion. The release of the data, watched closely by financial markets as a gauge of the economy’s strength, was anything but smooth. Twice the Tempe, Arizona-based group had to amend its figures due to calculation errors.
Factories are helping spur a second-quarter economic rebound after a slowdown in inventory-building led to the first contraction in three years. Sustained demand from consumers, combined with corporate orders for machinery and equipment, are helping propel sales at companies such as Cisco Systems Inc.
“The case for better growth is very good,” said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York, who projected a reading of 55.5. “We’re kind of at the point where the economy should really have a chance to pick up speed.”
The Standard & Poor’s 500 Index and Dow Jones Industrial Average rose to records, erasing earlier losses after the ISM’s corrections. The S&P 500 climbed 0.1 percent to 1,924.97 at the close in New York. The Dow advanced 0.2 percent to 16,743.63.
The median forecast of economists surveyed by Bloomberg called for 55.5. Estimates from 82 economists in the Bloomberg survey ranged from 54 to 57. Manufacturing accounts for about 12 percent of the economy.
At 10 a.m. New York time, the supply managers’ group said its May index fell to 53.2. That surprise decline put it at odds with an earlier report from London-based Markit Economics, which said its final index of U.S. manufacturing increased to a three-month high of 56.4 in May from 55.4 a month earlier.
Kenneth Kim, an economist at Stone & McCarthy Research Associates Inc. in Princeton, New Jersey, was among those who questioned the accuracy of the data. In follow-up interviews via telephone and on Bloomberg Radio, ISM survey chairman Bradley Holcomb said that the figure was 56, because the group applied incorrect seasonal adjustments to the raw data. That too proved inaccurate, prompting ISM to issue a second correction.
Holcomb said the sub-indexes used to derive the headline number -- orders, production, employment, supplier deliveries and inventories -- were inaccurately averaged after the initial figure was published.
“In our haste to provide corrected numbers, we didn’t quite get it right,” Holcomb said.
Manufacturing in May was boosted by the fastest pace of orders and output in five months.
The index of production increased to 61 from 55.7 the prior month, while the new orders measure advanced to 56.9 from 55.1.
Manufacturing employment and orders waiting to be filled expanded at slower paces in May than a month earlier.
Other factory reports from around the world were mixed. Manufacturing in the euro area grew at a slower pace amid weakness in France. A Purchasing Managers’ Index fell to a six-month low of 52.2 in May from 53.4, London-based Markit Economics said today.
Factories in China expanded in May at the fastest pace in five months. The Purchasing Managers’ Index rose to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing.
Vehicle demand remains a steady source of support for U.S. manufacturing. Car and light truck sales probably had another good month in May, economists forecast industry data will show tomorrow. The median forecast in a Bloomberg survey calls for a 16.1 million pace, up from 16 million a month earlier. Purchases climbed in April and March for the best back-to-back monthly gains since 2007, according to Ward’s Automotive Group.
Other reports reinforce signs of sustained activity at factories. Bookings for durable goods meant to last at least three years rose 0.8 percent in April after a March advance of 3.6 percent that was the strongest since November, Commerce Department figures showed last week.
San Jose, California-based Cisco reported third-quarter sales and profit that topped analysts’ estimates as rising data traffic from smartphones and tablets fueled demand for networking equipment while the company cut costs.
The housing recovery also is helping manufacturers as it generates sales of building equipment to appliances such as washers and cooking ranges. Whirlpool Corp., based in Benton Harbor, Michigan, is among businesses that are upbeat.
“We are, I would say, still in the early stages of a rebound in the housing market,” Chief Financial Officer Larry Venturelli said at a May 14 homebuilding conference.
Some manufacturers are facing a tougher time at the global economy is slow to improve. Peoria, Illinois-based Caterpillar Inc., the biggest maker of construction and mining equipment, reported a steepening decline in retail machine sales as mining companies continue to reduce spending. Global sales fell 13 percent in the three months through April from a year earlier, it said in a May 20 filing.
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