BLOOMBERG — Manufacturing grew in April at the fastest pace in almost a year, propelled by a pickup in orders that signaled factories will remain a source of strength for the U.S. expansion.
The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey and the best reading since June, the Tempe, Ariz.-based group’s report showed today (May 1).
Readings greater than 50 signal growth.
Any gain in the manufacturing sector would be welcome news in Arkansas.
Manufacturing jobs in Arkansas during March totaled 156,200, unchanged from February and well below the 160,400 during March 2011. Employment in the state’s once booming manufacturing sector fell in 2011 to levels not seen since early 1968. The December jobs figure is almost 34% below the January 2001 sector employment of 236,000.
The world’s largest economy may pick up after slowing in the first three months of the year as the increase in bookings indicates American assembly lines will keep churning out more goods. Combined with a report showing manufacturing in China also accelerated, the figures sent the Dow Jones Industrial Average to the highest level since 2007 as the data eased concern global growth was slackening.
Manufacturing “continues to be a bright spot in the recovery,” said Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York. “We have yet to see a drop-off in foreign demand for U.S.-manufactured goods, and that comes despite all the concerns of a slowdown in the global economy.”
The Dow gained 0.5% to close at 13,279.32 at the close in New York. The yield on the benchmark 10-year Treasury note rose to 1.95% from 1.91% late Monday.
Elsewhere, China’s manufacturing expanded for a fifth month in April to reach the highest level in a year. The news wasn’t universally good as a U.K. manufacturing index fell more than forecast in April as export orders fell the most since May 2009.
SURVEY RESULTS. AUTO DEMAND
The median forecast in a Bloomberg News survey of 79 economists projected the ISM index would drop to 53 from a reading of 53.4 in March. Estimates ranged from 52 to 54. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.
The group’s orders gauge climbed to the highest level in a year, while its production measure put it its best performance since March 2011 and employment advanced to a 10-month high, today’s report showed. The group’s export index also improved.
“We seem to have good, strong order books filling up for the next few months, and that bodes well,” Bradley Holcomb, chairman of the ISM’s factory survey said in a telephone interview. “Things are moving forward and moving forward at a good sustainable level, not indicating at this point any slowdowns.”
Stronger auto production bolstered the U.S. economy from January through March, which may keep supporting manufacturing. Motor vehicle output added 1.12 percentage points to growth, the most since the third quarter of 2009 and accounting for half of the 2.2% increase in gross domestic product. Cars last quarter sold at the fastest pace in four years, according to industry data.
The pickup in demand is holding up so far in the second quarter. Chrysler Group LLC led the five largest automakers by U.S. sales in exceeding analysts’ estimates for April. Chrysler’s sales climbed 20% and Toyota Motor Corp.’s deliveries rose 12%.
Purchases were little changed at a 14.38 million annual rate last month after 14.32 million in March, according to data from Ward’s Automotive Group.
Manufacturers mentioned gains in automotive and high-technology industries, the Fed said in its Beige Book business survey, published April 11. The firms “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices,” the Fed said in the report.
INDUSTRIAL DEMAND, EUROPEAN WOES
3M Co., the maker of fuel system tune-up kits and Post-it Notes, posted first-quarter profit that beat analysts’ estimates because of rising U.S. auto and industrial demand. The St. Paul, Minn.-based company’s industrial and transportation unit posted sales of $2.66 billion, an 8.6% increase.
At the same time, other areas may not be helping to support manufacturing in coming months. Business spending on equipment and software in the first quarter rose at the weakest in almost three years, a Commerce Department report showed last week. Overseas demand for U.S. made-goods also risks fading as global growth slows.
Spain’s economy contracted in the first quarter, putting the euro region’s fourth-largest economy into its second recession since 2009. The U.K. economy shrank 0.2% in the first quarter after contracting 0.3% in the prior three months as Britain slid into its first double dip recession since the 1970s.
“The global economy is uneven,” John Faraci, chairman and CEO of International Paper Co., said during an April 27 earnings call. “We got a recession going on in Western Europe. The growth has slowed in China and India. And North Americas is a recovering but far from fully recovered economic environment.”
Another report released May 1 showed construction spending in the U.S. grew less than forecast in March as state and local government agencies continued to pull back. The 0.1% increase followed a 1.4% decline in February that was larger than previously estimated, the Commerce Department reported.
The median estimate of economists surveyed by Bloomberg called for a 0.5% increase.