Rising Manufacturing Orders Signal Further Growth
The U.S. manufacturing expansion accelerated in March, driven by gains in production and orders, in the latest sign that the economy is shaking off its winter doldrums and building momentum into the second quarter.
The Institute for Supply Management’s index increased to 53.7 from 53.2 a month earlier, the Tempe, Arizona-based group said today. Readings above 50 indicate expansion. The median forecast in a Bloomberg survey of economists was 54.
Ford Motor Co., Chrysler Group LLC and Toyota Motor Corp. today reported March sales that beat analysts’ estimates as consumers, whose confidence is at a six-year high, returned to auto dealers and shopping malls as the weather warmed. Other figures this week are projected to show hiring picked up for a third consecutive month as employers become more convinced the world’s largest economy will quicken.
“The weakness we saw in the very early part of this year is going to abate and we’ll see better growth,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who correctly forecast the ISM figure. “We’re making our way back to something that’s more sustainable.”
Stocks rose as consumer and technology shares pushed the Standard & Poor’s 500 Index to an all-time high. The S&P 500 advanced 0.7 percent to 1,885.52 at the close in New York.
Ford, Chrysler, Toyota and General Motors Co. reported stronger motor-vehicle deliveries. Purchases rose 13 percent at Chrysler 4.9 percent at Toyota, 4.1 percent at GM and 3.3 percent at Ford. Cars and light trucks sold at a 16.33 million annualized rate in March, the strongest since May 2007, according to Ward’s Automotive Group.
“Solid March sales pushed first-quarter industry results ahead of last year’s pace despite one of the harshest winters on record,” Bill Fay, group vice president of the Toyota division, said in a statement. “Toyota dealers had their two best sales weekends of the year late in the month, and we’re optimistic that momentum will spring us into April.”
Further strides in the labor market are helping spur demand. Employers added 200,000 jobs in March, the most in four months, after a 175,000 increase, according to the median projection in a Bloomberg survey of economists before the April 4 Labor Department figures.
Makers of transportation equipment were among the 14 of 18 manufacturing industries that reported growth in March, according to today’s purchasing managers’ report. Estimates for the factory index from 81 economists in the Bloomberg survey ranged from 51.5 to 56. Manufacturing accounts for about 12 percent of the economy.
Production picked up last month as the mercury rose and suppliers had greater success making deliveries of parts and materials to factories. A measure of output rebounded by 7.7 points, the biggest gain since June 2009, when the last recession ended, the ISM figures showed.
“The plants were open, the employees were available, raw materials were available,” Bradley Holcomb, chairman of the purchasing managers’ group, said on a conference call with reporters. “That’s a good sign of thawing in terms of the weather conditions.”
Gains in measures of orders and backlogs indicate sustained production that may also lead to more hiring at the nation’s factories. The ISM’s gauge of orders waiting to be filled jumped to the highest level since April 2011.
Customer inventories shrank in March at the fastest pace since May 2011, which may also help bolster output.
The headline figure was held back by a slowdown in employment during the month, which dropped to the lowest since June.
American factories are stand-outs among their global counterparts. Among figures today, a gauge of factory activity in China, the world’s second-biggest economy behind the U.S., fell last month to the lowest level since July. In the euro area, manufacturing was little changed in March from the prior month. An index of U.K. factories dropped to an eight-month low.
At the same time, the pace of U.S. manufacturing remains slower than it was in the fourth quarter of 2013, when the ISM index averaged 56.7.
Capital spending in the first quarter probably cooled after growing at the end of 2013 at a 10.9 percent annual rate, the most in two years. Recent figures showed companies slowed the pace of equipment purchases. Orders for non-military capital goods excluding aircraft dropped 1.3 percent in February after a 0.8 percent gain in January that was smaller than initially reported, according to the Commerce Department data.
A pickup in spending by more-optimistic Americans will help spur factories. The New York-based Conference Board’s consumer sentiment index this month rose to its highest since January 2008, propelled by improved optimism about the economy’s prospects, according to a report last month.
Other recent data have showed demand is starting to stabilize after inclement weather kept shoppers from venturing out. The three months ended February marked the coldest winter since 2009-2010, according to the National Oceanic and Atmospheric Administration.
Retail sales increased 0.3 percent in February after falling 0.6 percent a month earlier and a 0.3 percent decrease at the end of 2013.
Atlanta-based Home Depot Inc. (HD) is among those maintaining a positive outlook after frigid weather damped prospects.
“As we plan 2014, we continue to think that there’s going to be a tailwind from the housing market,” Chief Executive Officer Francis Blake said at a March 19 retail conference. “To the extent we can read through the weather to the areas where there’ve been fewer weather impacts, we still feel good about our planning assumptions for the year.”
Federal Reserve policy makers are looking beyond the recent data showing a first-quarter growth slowdown, sticking with their tapering of monthly asset purchases.
Even as the central bank continues to pare its bond buying, Fed Chair Janet Yellen said yesterday in a speech that the Fed’s “commitment is strong” to helping sustain progress in the job market.
Stagnant wages and elevated levels of long-term unemployed are among the obstacles to the recovery that merit unprecedented accommodation by the Fed for “some time,” she said.
The Federal Open Market Committee has kept the benchmark interest rate near zero since December 2008 and sought to cut borrowing costs and fuel growth through bond buying that has more than quadrupled its assets to a record $4.23 trillion.
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