Manufacturing in U.S. Expands at Slowest Pace in a Year

Manufacturing expanded in February at the weakest pace in a year, limited by weaker growth abroad and a work slowdown at West Coast ports. The Institute for Supply Management's index dropped to 52.9, the lowest since January 2014, from 53.5 a month earlier, the Tempe, Arizona-based group's report showed Monday.

Manufacturing expanded in February at the weakest pace in a year, limited by weaker growth abroad and a work slowdown at West Coast ports.

The Institute for Supply Management’s index dropped to 52.9, the lowest since January 2014, from 53.5 a month earlier, the Tempe, Arizona-based group’s report showed Monday. Readings above 50 indicate growth and the median forecast in a Bloomberg survey of economists was 53.

Cutbacks in demand from overseas customers and domestic energy producers led to the weakest growth in new orders since May 2013, prompting U.S. factories to slow the rate of hiring. At the same time, manufacturing is being underpinned by sustained spending from American consumers who are enjoying low prices at the gas pump.


“Manufacturing growth has slowed, but it’s still expansionary,” said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh, whose forecast matched the median. “It’s comfortably above 50 but down from where it was a few months ago. We didn’t think we would sustain that pace, particularly with the slowing in global growth, but manufacturing is still expanding and adding to output.”

Purchasing managers from transportation equipment makers to food manufacturers said the work stoppage at West Coast ports was affecting supply chains and increasing costs, the ISM survey showed. The dispute over a dockworkers’ contract has since been resolved and the nation’s two busiest seaports -- Los Angeles and Long Beach -- are working through their biggest backlog of ships in a decade.

Port Slowdown

“It’s certainly likely to take a few weeks to clear the whole mess out,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. “It’s obviously been a growing, growing concern.” The resolution of the port situation probably will mean “things will normalize within the next month or so.”

Consumer spending adjusted for inflation rose in January, a sign the plunge in gasoline prices is helping boost the biggest part of the economy, another report Monday showed. The 0.3 percent increase followed a 0.1 percent decline in December, according to Commerce Department data.

So-called nominal spending, which doesn’t take into account changes in price, declined 0.2 percent, more than estimated, while incomes grew 0.3 percent for a second month.

Stocks Rise

Stocks rose, with the Nasdaq Composite Index rising above 5,000 for the first time in 14 years, as investors assessed the strength of consumer spending. The Standard & Poor’s 500 Index climbed 0.3 percent to 2,111.34 at 11:07 a.m. in New York. Nasdaq Composite added 0.6 percent to 4,993.16 after earlier rising to 5,000.33.

Estimates for the ISM factory index from 86 economists in the Bloomberg survey ranged from 50 to 56.2.

Twelve of the 18 industries reported growth, led by paper, printing and furniture. Makers of textiles, apparel, and computer and electronic products reported activity shrank from a month earlier.

The ISM’s gauge of new orders declined to 52.5 last month from 52.9 in January. Order backlogs climbed.

The measure of export orders dropped to 48.5 in February, the lowest since November 2012, and indicating demand is falling at a faster rate, from 49.5.

China Manufacturing

In China, a manufacturing gauge in January signaled contraction for the first time since September 2012 and underscored a slowing economy. Growth in the euro-area economy increased 0.3 percent in the fourth quarter.

The ISM’s U.S. factory employment index declined to 51.4, the lowest since June 2013, from 54.1 the prior month. The production gauge cooled to 53.7 from 56.5 in January.

The report also showed the gauge of factory inventories climbed in February to a four-month high. An index of prices paid held at 35, the lowest since April 2009.

Slower orders have prompted businesses such as Deere & Co., the largest maker of farm equipment, to temper profit projections. Lower crop prices and farm income that the government estimates will show the biggest drop since the Great Depression are damping expectations for equipment spending.

The Moline, Illinois-based company reduced its estimate of net income to $1.8 billion in the fiscal year through October, down from $1.9 billion in November.

Demand for automobiles remains a bright spot. Cars and light trucks sold at a 16.6 million annualized pace in January, according to figures from Ward’s Automotive Group. That beats last year’s 16.4 million monthly average that marked the best annual performance since 2006.

Consumer Spending

Steady gains in consumer spending, which accounts for almost 70 percent of the economy, are underpinning U.S. factories.

Household purchases grew in the fourth quarter at a 4.2 percent annualized pace, the most since the last three months of 2010, according to the Commerce Department’s second estimate for the period covering the final three months of 2014. The economy expanded at a 2.2 percent rate over the same period, the data showed in last week’s release.

Cheaper fuel prices have cushioned households. A gallon of regular gasoline cost an average $2.43 on March 1. While that’s still below last year’s peak of $3.70, it’s up from an almost six-year low of $2.03 in January.

A labor market that’s coming off its best year since 1999 also is supporting spending and keeping Federal Reserve officials upbeat about the economic outlook. The central bankers are eyeing the employment gains as they weigh when to raise interest rates for the first time since 2006.

“Considerable progress has been achieved in the recovery of the labor market, though room for further improvement remains,” Fed Chair Janet Yellen said in testimony last week before the Senate Banking Committee.

To read original article, please click here

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles