Factories Humming in U.S. Even Amid Global Slowing: EconomyVictoria Stilwell
Manufacturing growth in the U.S. barely skipped a beat in November, holding near the strongest pace in three years, as the world’s largest economy rose above a global slowdown.
The Institute for Supply Management’s factory index was little changed at 58.7 last month, the second-strongest level since April 2011, compared with 59 in October, the Tempe, Arizona-based group reported today. Readings greater than 50 indicate expansion.
Orders over the past four months have been the strongest in a decade as growing demand from American clients makes up for any letdown among foreign customers. Figures yesterday showing retailers struggled to lure shoppers during the first weekend of the holiday season raise concern that the pace of growth will be difficult to sustain heading into 2015.
“Whatever is happening abroad, this sector seems to be shrugging it off,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who projected a reading of 58.5. “There’s still a fair amount of momentum in the U.S. manufacturing sector.”
American producers keep powering ahead at the same time their global competitors slow. Manufacturing in Germany, France and Italy unexpectedly contracted last month, according to purchasing managers’ gauges. An index of Chinese manufacturing fell as mandatory plant shutdowns during the Asia-Pacific Economic Cooperation forum aggravated a pullback in the economy.
One standout internationally was the U.K., where manufacturing growth unexpectedly accelerated in November to the fastest pace in four months as domestic demand strengthened.
Back in the U.S., consumers were unmoved by retailers’ holiday discounts as spending tumbled an estimated 11 percent over the weekend from a year earlier, the Washington-based National Retail Federation said yesterday. More than 6 million shoppers who had been expected to hit stores never showed up.
“If we don’t see consumers spend at a very markedly improved pace in November and December, we are looking for manufacturing, which has been really the silver lining of the recovery in the second and third quarters, to fall off sizably,” said Lindsey Piegza, chief economist at Sterne Agee & Leach Inc. in Chicago.
Stocks dropped, sending benchmark indexes lower for a second day, as investors focused on the disappointing manufacturing data from overseas and the weaker holiday-spending numbers. The Standard & Poor’s 500 Index fell 0.7 percent to 2,053.44 at the close in New York.
The U.S. ISM’s orders index climbed to 66 from 65.8 in October. The 64.6 average over the past four months is the highest for a similar period since early 2004.
Even exports showed improvement, with the gauge advancing to 55 from 51.5 in October.
That was in contrast to another manufacturing gauge. The Markit Economics final November index of U.S. manufacturing decreased to 54.8 from 55.9 a month earlier, the London-based group said today. The group’s export index dropped.
The ISM index showed factories are struggling to keep up with demand as the index of bookings waiting to be filled rose to the highest level since April. ISM’s supplier deliveries gauge increased to the highest level since February, indicating factories were experiencing more delays in getting materials.
Some of the increase in backlogs could be due to dockworker slowdowns on the West Coast, Bradley Holcomb, chairman of the ISM’s factory survey, said in a conference call. Longshoremen have been negotiating a new contract with the Pacific Maritime Association, which represents terminal operators and shipping lines at 29 ports from San Diego to the Canadian border.
Nonetheless, deliveries have been slow for months, indicating that more than just the port negotiations are delaying supplies, said Holcomb.
“There’s a strong backlog of orders as well as new orders, so we’re well-positioned to close out the year at a strong” reading going into 2015, Holcomb said on the call.
The group’s production gauge barely budged from a 10-year high, decreasing to 64.4 in November from 64.8 the month before.
Lower raw-material costs are another boon for manufacturing. ISM’s prices paid index fell to 44.5, signaling expenses dropped for the first time since July 2013 and by the most since July 2012.
One potentially dark cloud in the report was that factories’ clients reported they had about enough goods on hand, suggesting bookings may not pick up much more. The customer inventory index rose to 50, the break-even point between having too much and too little stock. That was its highest reading in three years.
Rockwell Automation Inc., the Milwaukee-based maker of software for factories, is among companies that are optimistic about prospects for U.S. manufacturing growth in 2015, even if it does moderate from this year’s pace.
“Our sales tend to move best with the actual industrial production growth rates and probably secondarily with what’s going on with general GDP growth,” Chief Financial Officer Theodore Crandall said at a Nov. 20 investor meeting. On a global scale, “what we’re expecting in terms of the healthiest environment in 2015 is the U.S.”
Gross domestic product grew at a 3.9 percent annualized pace in the third quarter following a 4.6 rate in the prior period, marking the strongest six months of growth in more than a decade, according to figures from the Commerce Department.
Consumer spending, which accounts for about 70 percent of the economy, grew at a 2.2 percent annualized rate in the third quarter, up from a previously estimated 1.8 percent. The improvement was spread across durable and non-durable goods, including recreational vehicles and restaurant meals.
Business investment in new equipment climbed at a 10.7 percent annualized rate last quarter, revised up from 7.2 percent, last week’s report showed.