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Manufacturing in U.S. Expands at Slower Rate Than Forecast

Manufacturing in the U.S. expanded at a slower pace than forecast in May as orders and production eased from the previous month.

The Institute for Supply Management’s factory index fell to a three-month low of 53.2 from the prior month’s 54.9, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between growth and contraction. The median forecast of economists surveyed by Bloomberg called for a gain to 55.5.

Some companies may be waiting for more evidence of a pickup in sales before they add new equipment and expand capacity. At the same time, steady demand for vehicles and the need to replace aging machinery will help keep investment from faltering and benefit manufacturers such as Cisco Systems Inc. and Whirlpool Corp.

“We have a little bit of a normalization in May of manufacturing output and sentiment after a big unwind of the winter weakness in April,” said Guy Lebas, managing director of fixed income strategy at Janney Montgomery Scott LLC in Philadelphia. Manufacturing ‘is telling us right now that things are stable, not spectacular.”

Estimates from 82 economists in the Bloomberg survey ranged from 54 to 57. Manufacturing accounts for about 12 percent of the economy.

Stocks fell after the benchmark Standard & Poor’s 500 Index climbed to a record last week. The S&P 500 dropped 0.2 percent to 1,919.63 at 10:32 a.m. in New York.

Output, Orders

The index of production decreased to a three-month low of 55.2 from 55.7 the prior month. The new orders measure fell to 53.3, the lowest in four months, from 55.1.

The employment gauge decreased to 51.9 from 54.7.

The measure of orders waiting to be filled dropped to 52.5 from 55.5. The inventory index was unchanged at 53, while a gauge of customer stockpiles climbed to 46.5 from 42. A figure higher than 50 means manufacturers are building stockpiles.

The index of prices paid increased to 60 from 56.5.

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.

Manufacturing 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.

Auto Sales

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.

The housing recovery also is helping manufacturers as it generates sales of building equipment to appliances such as washers and cooking ranges. Whirlpool, 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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