U.S. Economy: Manufacturing Unexpectedly Accelerates

July 02, 2011, 1:47 PM EDT By Alex Kowalski

(Updates with closing market prices in fifth paragraph.)

July 1 (Bloomberg) -- U.S. manufacturing unexpectedly accelerated in June, supporting the Federal Reserve’s forecast that the economy will strengthen in the second half of 2011.

The Institute for Supply Management’s factory index rose to 55.3, the first gain in four months, from 53.5 in May, the Tempe, Arizona-based group said today. Economists projected a decrease to 52, according to the median forecast in a Bloomberg News survey. Figures greater than 50 signal expansion.

Stocks climbed for a fifth day on signs manufacturing is rebounding from higher commodities costs and shortages of parts caused by the earthquake in Japan. As emerging markets power sales at companies like Parker Hannifin Corp., bigger job gains may be needed to boost confidence among U.S. consumers, whose spending accounts for 70 percent of the economy.

“The Fed is counting on growth to reaccelerate in the second half, and to that extent the manufacturing report is encouraging,” said James O’Sullivan, chief economist at MF Global Inc. in New York. “To be more confident about the economy in the second half, we need a renewed upward turn in the labor market.”

The Standard & Poor’s 500 Index climbed 1.4 percent to 1,339.67 at the 4 p.m. close in New York, extending a weekly rally to 5.6 percent, the most since July 2009. Treasuries fell, pushing up the yield on the benchmark 10-year note up to 3.19 percent from 3.16 percent late yesterday.

A measure of consumer confidence fell more than projected in June, and construction spending in May dropped for a sixth straight month as the housing market remained a hurdle for the expansion, other reports today showed.

Inventories Grow

Estimates for the manufacturing index from 77 economists in the Bloomberg survey ranged from 49 to 55. The supply managers’ report showed factory inventories grew in June at the fastest pace since November. Measures of production, new orders and employment rose at a slower pace.

“We’re not looking at robust recovery period here, but through thick and thin it’s being sustained,” Bradley Holcomb, chairman of the Institute for Supply Management’s factory survey committee, said during a conference call with reporters. “Everybody’s cautious.”

The data are at odds with other figures today that showed manufacturing growth is slowing from China to Europe. China’s factory index fell in June to the weakest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the slowest pace in 17 months, while Italy, Ireland, Spain and Greece contracted.

Confidence among U.S. consumers declined in June. The Thomson Reuters/University of Michigan said today its final index of sentiment fell to 71.5 from 74.3 in May.

Construction Spending

The Commerce Department reported that construction spending in May dropped for a sixth straight month. The 0.6 percent decrease matched the previous month’s decline, which was initially reported as a gain.

Economic growth in the U.S. slowed to a 1.9 percent annual pace in the first quarter from 3.1 percent in the previous three months. Employers added 54,000 workers to their payrolls in May, the smallest number in eight months.

Fed policy makers attributed some of the slowdown in the first half of the year to “factors that are likely to be temporary.”

“The effects of the Japanese disaster on manufacturing output are likely to dissipate in coming months,” Fed Chairman Ben S. Bernanke told reporters on June 22 after the Fed’s two- day policy meeting.

Reports last month suggest supply problems may be starting to ease. U.S. factory output climbed 0.4 percent in May on rising demand for machinery and computers, Fed data showed June 15.

Japanese Production

In Japan, industrial production increased in May by the most since 1953, led by carmakers that restored operations, government figures showed June 29.

Even with the earthquake, unrest in the Middle East and higher commodity prices, manufacturing “has been the rock in the system,” Thomas L. Williams, chief operating officer at Parker Hannifin, said June 16 at a conference in Chicago. “I still feel that way. I’m not worried about a double-dip recession as far as what I’m seeing.”

The Cleveland-based maker of components used in construction equipment and aircraft is focusing on growth in Asia, where it is on track to triple sales to $3 billion, Williams said.

--With assistance from Alex Tanzi and Shobhana Chandra in Washington. Editors: Vince Golle, Christopher Wellisz

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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U.S. Existing-Home Sales Unexpectedly Fall

May 19, 2011, 4:36 PM EDT By Bob Willis and Shobhana Chandra

(Updates with closing markets in fifth paragraph.)

May 19 (Bloomberg) -- Sales of existing U.S. homes unexpectedly declined, manufacturing in the Philadelphia region slowed and consumer confidence dropped, pointing to an economy that is struggling to regain momentum following the surge in energy costs.

Purchases of existing homes decreased 0.8 percent to a 5.05 million annual pace in April, the National Association of Realtors said today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index fell in May to the weakest reading in seven months, and the Bloomberg Consumer Comfort Index slumped to a nine-month low, other reports showed.

Gasoline prices hovering close to $4 a gallon and rising grocery bills may discourage American households from taking on big purchases like houses just as manufacturing cools after leading the economy out of the recession. Another report showing claims for jobless benefits are retreating after an April surge raises the odds any economic slowdown will prove temporary.

“We’re going through a soft patch,” said Eric Green, chief market economist at TD Securities Inc. in New York. “Housing is just bouncing along the bottom. Job demand is real, and we’re going to emerge past this soft patch.”

Stocks advanced, helped by the larger-than-forecast decline in jobless claims. The Standard & Poor’s 500 Index rose 0.2 percent to 1,343.6 at the 4 p.m. close in New York. Earlier, stocks declined after the reports on housing, confidence and manufacturing, combined with a worse-than-projected reading for the index of leading economic indicators.

Worse Than Forecast

The median forecast of 75 economists surveyed by Bloomberg News projected sales of existing houses would climb to a 5.2 million rate. Estimates ranged from 5.09 million to 5.40 million. Purchases reached a record 7.08 million in 2005, and slumped to a 13-year low of 4.91 million last year.

As of March 31, about 5.6 million houses were either in foreclosure or their owners were more than 30 days late in making mortgage payments, according to Bloomberg calculations, raising the risk that property values will keep falling. That would make any sustained recovery difficult to achieve.

About 37 percent of all transactions last month were of distressed properties, which were either in foreclosure or short sales where a bank agrees to take less than the outstanding mortgage balance, according to today’s report from the agents’ group. Cash transactions accounted for 31 percent after a record 35 percent in March, NAR chief economist Lawrence Yun said in a press conference as the figures were released.

The Realtors group began tracking the monthly figure in August 2008, and the share on a yearly basis before that was around 10 percent, Yun has said.

Distressed Sales

“Existing-home sales continue to have a strong bent to distressed sales and all-cash deals, which implies ongoing weakness in prices,” said Neil Dutta, an economist at Bank of America Merrill Lynch.

Manufacturers, facing a less pressing need to rebuild inventories and supply disruptions following the earthquake and tsunami in Japan, may also be slowing down. The Federal Reserve Bank of Philadelphia’s general economic index fell to 3.9, the weakest reading since October, from 18.5 a month earlier. Figures greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The report “points to a slowing, but not a dramatic slowing, in manufacturing,” said Bricklin Dwyer, an economist at BNP Paribas in New York. “The inventory rebuilding cycle has tapered off and now we have a normalization,” he said, and “Japanese supply-chain disruptions are likely reflected.”

Confidence Wanes

The Bloomberg Consumer Comfort Index declined to minus 49.4 in the period to May 15, the worst reading since August, from the prior week’s minus 46.9. A gauge of personal finances plunged to the weakest level since October 2009, and a monthly measure of economic expectations held at a seven-month low.

Retailers like Wal-Mart Stores Inc. are among those seeing sales drop as energy prices climb, pointing to a slowdown in consumer purchases, which account for about 70 percent of the economy. The world’s largest retailer this week said sales at U.S. stores open at least a year dropped 1.1 percent, the eighth decline in a row. Customers are still struggling with economic uncertainty, buying more generic items rather than their more costly name-brand counterparts, executives said in a May 17 pre- recorded call.

Customers are making fewer trips to stores because of the increase in fuel prices, U.S. stores chief Bill Simon said on the call.

Leaders Drop

The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, fell 0.3 percent in April, the first drop in 10 months, the New York- based group said. The measure was depressed by a pickup in jobless claims that reflected temporary setbacks including auto- plant shutdowns caused by the disaster in Japan.

“Momentum is softening,” said Bank of America Merrill Lynch’s Dutta. “The manufacturing sector is losing some of its luster, softening alongside the broader economy.”

Another report today showed fewer Americans than forecast filed first-time claims for unemployment benefits last week. Applications declined by 29,000 to 409,000, according to figures from the Labor Department. Economists projected 420,000, according to the median forecast in a Bloomberg survey.

Applications for unemployment benefits surged last month due to events that seasonal variations failed to take into account, such as a late school holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan, the Labor Department has said.

Claims “are unwinding the run-up in April,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “The labor market is slowly improving. It allows slow, but positive growth in consumer spending.”

--With assistance from Chris Middleton, Timothy R. Homan and Alex Kowalski in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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