Business Activity in U.S. Unexpectedly Picked Up in February

Business activity in the U.S. unexpectedly expanded in February at the fastest pace in almost a year, a sign the manufacturing industry is poised for growth.

The MNI Chicago Report business barometer rose to 56.8, the highest level since March, after a reading of 55.6 in January. Numbers greater than 50 signal expansion. The median forecast of 51 economists surveyed by Bloomberg was 54.

Manufacturing, which makes up about 12 percent of the U.S. economy, is regaining its footing after slipping in mid 2012 as overseas markets heal, companies spend more on equipment and automobile sales improve. Strength in the factory sector indicates producers are still seeing demand even amid higher taxes on consumers and signs that lawmakers in Washington won’t come to agreement on a budget deal.

“Things are pretty positive for manufacturing,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who forecast the index would climb to 57. “Businesses feel much more comfortable about spending money, and also we had very little inventory building in manufacturing in the fourth quarter, so people have to rebuild stocks.”

Estimates in the Bloomberg survey ranged from 52.2 to 58. The index average 54.6 in 2012 and 62.8 in 2011.

Other reports today showed the economy eked out a gain in the fourth quarter and claims for jobless benefits dropped more than forecast last week.

Confidence Improves

Confidence among consumers improved last week to the highest level this year as the housing recovery and recent gains in stocks removed some of the sting from higher payroll taxes, other figures also showed today. The Bloomberg Consumer Comfort Index climbed for a fourth straight week, reaching minus 32.8 in the period ended Feb. 24 from minus 33.4 in the prior period. The share of Americans with a positive view of the world’s largest economy matched the highest since March 2008.

Stocks held earlier gains after the reports. The Standard & Poor’s 500 index climbed 0.2 percent to 1,518.79 at 10:24 a.m. in New York.

The Chicago group’s gauge of new orders climbed to 60.2 in February, also the highest in almost a year, from 58.2 in January. A measure of employment decreased to 55.7 from 58, a seven-month high. The production index was little changed, easing to 60.2 from 60.9 in January, a 10-month high, today’s report showed.

Economists monitor the Chicago index and other regional reports for an early reading on the national manufacturing outlook. The Chicago group includes goods producers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

Regional Surveys

The Federal Reserve Bank of New York’s general economic index showed manufacturing in the New York, northern New Jersey and southern Connecticut area unexpectedly expanded in February, a sign producers are emerging from a slump that begin in August. At the same time, the Federal Bank of Philadelphia’s index unexpectedly contracted for a second month.

Yesterday, a report showed orders for U.S. durable goods excluding transportation equipment climbed in January by the most in a year, indicating companies plan to expand capacity as they look beyond the budget impasse in Washington. Because Congress hasn’t compromised on deficit reduction plans, about $1.2 trillion in spending reductions over the next decade are scheduled to start taking effect tomorrow.

Businesses, nonetheless, are poised to keep investing in equipment. The durable goods report yesterday showed orders of capital good, excluding defense and aircraft, have climbed 9.5 percent since October, the biggest three-month gain since 1993. A global economy that is regaining its footing should support American producers as well.

Growth Pickup

“We’re enthusiastic about the reports we’re getting from our customers that lead us to expect stronger market conditions in the second half of 2013,” Chuck Cargile, chief financial officer of laser manufacturer Newport Corp., said during a Feb. 20 earnings call. ‘In the near term, our outlook continues to be cautious because the expectations of a stronger second half of 2013 are not yet reflected in our orders or our backlog.”

One other driver for industrial production, cars and light trucks sold at a 15.2 million annual rate last month after 15.3 million in December, according to Ward’s Automotive Group. Including November’s 15.5 million rate, car sales in the past three months have been the strongest in five years.

The Institute for Supply Management’s factory index for February, due tomorrow, will probably show expansion for the third month, according to the median forecast of economists surveyed by Bloomberg.

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