Factories Sustain Gains as U.S. Growth Picks Up: Economy

American factories, propelled by the strongest orders of the year, sustained gains in June and are poised to be part of the rebound in economic growth.

The Institute for Supply Management’s manufacturing index was 55.3 last month, little changed from a five-month high of 55.4 in May, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 indicate expansion.

Producers of wood products, furniture, metals and machinery were among those seeing a pickup in demand as gains in auto and home sales rippled through the world’s largest economy. Growing consumer spending, lean inventories and improving overseas markets will probably keep assembly lines busy in the second half of the year.

“Manufacturing is back on track,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, the top U.S.-based ISM forecaster over the past two years, according to data compiled by Bloomberg. “It’s growing at a solid pace.”

Factories globally were also mostly on an upswing, figures today showed. In China, the world’s second-largest economy, manufacturing grew in June at the fastest pace of the year, according to a gauge from the National Bureau of Statistics and China Federation of Logistics and Purchasing.

In the U.K., manufacturing expanded in June at the strongest pace in seven months, according to Markit Economics. Factories in the 18-nation euro area cooled last month, as a deepening downturn in France offset a pickup in Spain, other Markit data showed.

Shares Rally

The Standard & Poor’s 500 Index rose to a record, after posting the longest streak of quarterly gains since 1998, as technology and consumer shares rallied. The S&P 500 climbed 0.7 percent to 1,973.32 at the close in New York.

The median forecast of 88 economists surveyed by Bloomberg projected the U.S. ISM index would rise to 55.9. Estimates ranged from 54 to 57. Manufacturing accounts for about 12 percent of the economy.

Auto sales in June are forecast to exceed a 16 million annualized rate for the third time in the past four months. General Motors Co. surprised investors today with a 1 percent sales gain from a year earlier after analysts projected a decrease. Demand at Ford Motor Co., Chrysler Group LLC and Nissan Motor Co. also beat estimates. Purchases at Toyota Motor Corp. rose 3.3 percent.

“Sales in the first half of 2014 indicate a steadily recovering industry, and we expect this pace to increase as we move into the second part of the year,” said Bill Fay, group vice president for the Toyota Division.

Construction Projects

Another report showed construction spending climbed 0.1 percent in May after a revised 0.8 percent gain in April that was stronger than initially estimated, according to the Commerce Department. The increase was paced by growing outlays for non-residential structures and a jump in projects by state and local government agencies.

Fifteen of the 18 manufacturing industries measured by ISM reported growth in June.

“Things are moving forward nicely,” Bradley Holcomb, chairman of the institute’s survey, said on a conference call with reporters today. “We’re on a very positive trend despite the very tiny decline in the rate.”

Today’s ISM report showed a gauge of new orders climbed to the highest since December. The production measure came in at 60 compared with 61 in May for the best back-to-back showing since the end of 2013.

Production Gains

“It’s a good report for the overall economy,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the manufacturing index. The report “is consistent with the continued gains in industrial production.”

American factories received more orders for business equipment in May, the Commerce Department reported last week, pointing to gains in investment that will probably help the economy snap back after contracting in the first quarter. Bookings for capital goods such as computers rose 0.7 percent after a 1.1 percent drop in April.

Business investment in equipment fell at a 2.8 percent rate during the first quarter, Commerce Department figures showed last month. Gross domestic product shrank at a 2.9 percent annualized rate, the biggest decline since the depths of the recession in early 2009.

The downturn in GDP reflected a slowdown in the pace of inventory growth, setting the stage for a pickup in production.

Auto Sales

Improving car sales, which reached a 16.7 million annualized rate in May, the strongest since February 2007, is extending to other areas.

Winnebago Industries Inc. reported its strongest quarterly revenue since 2005 for the three months ended May 31. The Forest City, Iowa-based company is investing in manufacturing equipment and upgrading information systems. Capital expenditures could reach $10 million to $12 million this year, Chief Financial Officer Sarah Nielsen said.

“We anticipate capex in fiscal 2015 to be elevated from this year as a result of our planned reinvestment in the business,” Nielsen said on a June 26 earnings call. “We remain very optimistic for the future as we continue to see robust demand.”

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