Manufacturing in the United States shrank in September 2012

U.S. Manufacturing Probably Shrank as Global Economy Cooled

By Michelle Jamrisko – Oct 1, 2012 1:31 PM GMT+0100

Manufacturing in the U.S. probably contracted in September for a fourth straight month, showing an industry that’s hobbled by a global economic slowdown, economists said before a report today.

The Institute for Supply Management’s factory index was little changed at 49.8 last month from 49.6 in August, according to the median estimate of 68 economists surveyed by Bloomberg. A reading of 50 is the dividing line between expansion and contraction. Construction spending probably climbed in August, another report may show.

Less export demand and cutbacks in household spending are persistent headwinds for manufacturers such as Caterpillar Inc. and Worthington Industries Inc. Production is also being restrained by companies putting off equipment purchases on concerns automatic government spending cuts and higher taxes will go into effect next year and slow the economy.

“Europe is still a big problem out there, you’re seeing weaker global growth in general,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “A lot of firms doing business in Europe are reporting weaker results, a lot more caution.”

In the euro-area, manufacturing contracted for a 14th month in September, suggesting the economy may have struggled to avoid a recession in the third quarter. A gauge of the industry in the 17-nation currency region based on a survey of purchasing managers was 46.1, Markit Economics said today. The index has held for 14 months below 50, indicating contraction, and fell as low as 44 in July.
U.K. Manufacturing

U.K. manufacturing shrank more than economists forecast and export orders declined for a sixth month. A measure based on a survey of purchasing managers fell to 48.4 from 49.6 in August, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today.

In China, manufacturing contracted for an 11th straight month, increasing pressure on the government to bolster growth in the world’s second-largest economy. The purchasing managers’ index from HSBC Holdings Plc and Markit Economics was at 47.9 last month, compared with 47.6 in August. Export orders declined at the fastest pace in 42 months and purchasing activity in manufacturing fell for a fifth consecutive month, the Sept. 29 report showed.

The Tempe, Arizona-based ISM will release the U.S. manufacturing report at 10 a.m. New York time. Estimates ranged from 48 to 51.2. The group has said that an index reading above 42.5, while signaling contraction in manufacturing, is generally consistent with an expanding overall economy. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.
Regional Data

Regional reports from the Federal Reserve showed further easing in manufacturing, which accounts for about 12 percent of the economy. Factory activity in the New York area contracted in September at the fastest pace since April 2009. In and around Philadelphia, manufacturing shrank for a fifth straight month.

The Institute for Supply Management-Chicago Inc.’s business barometer contracted in September for the first time in three years.

Manufacturers like steel-processor Worthington Industries (WOR) are tempering their outlook.

“We don’t have a great deal of clarity on where the economy is going,” John McConnell, the Columbus, Ohio-based company’s chairman and chief executive officer, said on a Sept. 27 earnings call. “We’re also not saying that everything’s horrible out there. We’re saying we have some reason to be cautious.”
Caterpillar Forecast

Caterpillar, the world’s biggest construction and mining equipment maker, last week cut its forecast for 2015 earnings after commodity producers reduced capital expenditures. While a global recession remains possible, Caterpillar is forecasting moderate and “anemic” growth through 2015, Chairman and Chief Executive Officer Doug Oberhelman said in a presentation to analysts on Sept. 24.

“We are in no way thinking we’re going to see a recession in 2013,” Oberhelman said. “Europe’s in recession today, probably going be a while to dig out.”

Shares of manufacturers have trailed the broader markets. The Standard & Poor’s Supercomposite Industrial Machinery Index (S15MACH) has advanced 8.1 percent since the end of 2011, compared with a 14.6 percent gain in the broader S&P 500.

To boost growth and stimulate more hiring that may provide a spark for the economy, the Fed last month said it would keep its target interest rate close to zero until at least mid-2015 and began a third round of stimulus, buying $40 billion in mortgage bonds a month.
FOMC Statement

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said Sept. 13 in a statement at the end of a two-day meeting in Washington.

The global economy shows few signs of improving. The euro- area economy shrank from April to June, the third straight quarter without expansion, the European Union’s statistics office said Sept. 6.

China’s economy has slowed for six consecutive quarters since 2010, and economists forecast gross domestic product will cool in the three months that ended in September. The projected 7.4 percent gain in the third quarter from the same three months in 2011 would be the smallest since the first quarter of 2009, according to the median estimate in a Bloomberg survey.

At the same time, housing has been a source of strength for the economy. Economists project construction spending rose 0.5 percent in August after its first drop in four months, according to the survey median ahead of the 10 a.m. report from the Commerce Department.

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