US manufacturing expands after reaching 3-year low

Bloomberg NewsJanuary 2, 2013 

— Manufacturing in the United States expanded in December at a pace that shows the industry is stabilizing after reaching a three-year low a month earlier.

The Institute for Supply Management’s manufacturing index climbed to 50.7 last month from November’s 49.5, which was the weakest since July 2009, the Tempe, Ariz.-based group’s report showed Wednesday. Fifty is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg called for a rise to 50.5.

Sustained growth in the U.S., in part due to a housing rebound, and steadying overseas markets are helping underpin factory orders and keeping manufacturing from faltering. While lawmakers moved to extend tax cuts for about 99 percent of households, corporate confidence in the expansion will take time to build as Congress prepares to debate spending cuts and the debt ceiling.

“We finished the year on an uptick, but there isn’t a firm rebirth of confidence on the part of businesses,” said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, who projected 51 for the December factory index. “We could face a little bit of a bumpy period before turning to slow growth in manufacturing.”

The median forecast was based on projections from 71 economists in the Bloomberg survey. Estimates ranged from 48 to 52. For all of last year, the factory gauge averaged 51.7, down from 55.2 in 2011 and 57.3 in 2010.

“We can take away a lot of positives from the December report,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. The step taken to avoid the so-called fiscal cliff “is positive news” and “bodes well for manufacturing.”

Manufacturing in the U.S., which accounts for about 12 percent of the economy, was at the forefront of the recovery that began in June 2009.

Recent regional reports show a mixed picture. Manufacturing in the Philadelphia area unexpectedly expanded in December to an eight-month high, while New York-region factories shrank for the fifth straight month.

The automobile industry remains one source of growth. Cars and light trucks sold at a 15.5 million annual rate in November, the most since February 2008, boosted in part by buyers replacing cars damaged by superstorm Sandy, according to data from Ward’s Automotive Group.

An improving housing market also is helping manufacturers such as Illinois Tool Works, a maker of welding equipment, construction supplies and auto parts. Homebuilding outlays increased 0.4 percent in November to a $295.3 billion annual rate, the most in four years, a report today from the Commerce Department showed.

The pickup in homebuilding failed to offset declines in non-residential building and public works as total construction spending fell 0.3 percent in November after a 0.7 percent gain, the agency said.

“On the construction side, certainly we do expect housing starts to get better from where they’ve been,” Ronald Kropp, chief financial officer of Glenview, Ill.-based Illinois Tool Works, said on a Dec. 14 conference call with analysts. “Offsetting that is more than 50 percent of our construction business is outside of the U.S., and Europe and Australia, which is a big piece of it, is still slowing or negative. So, there are some upsides on the U.S. side from residential, but offset by international.”

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