manufacturing

Manufacturing cools along with private payrolls

BLOOMBERG FILE PHOTO/TY WRIGHT
MANUFACTURING EXPANDED AT THE slowest pace this year in April, as companies took on the fewest workers in seven months.
Posted 5/2/13

WASHINGTON – Manufacturing expanded in April at the slowest pace this year and companies took on the fewest workers in seven months, adding to evidence of a slowdown in the world’s largest economy.

The Institute for Supply Management’s factory index fell to 50.7 from the prior period’s 51.3, the Tempe, Ariz.-based group said today. Fifty is the dividing line between growth and contraction. The ADP Research Institute said private payrolls rose 119,000 last month, the least since September, while another report showed construction outlays slumped in March.

Factories are pulling back as the need to rebuild inventories wanes, across-the-board federal budget cuts take hold and higher payroll taxes restrain consumer spending. Federal Reserve policy makers said today at the conclusion of their two-day meeting that they will continue to pursue record stimulus in an attempt to bolster the economy and job market.

“Manufacturing is stalling a bit,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y., who was the best forecaster of ISM manufacturing over the past two years, according to data compiled by Bloomberg. “Hiring has probably slowed a little. For the Fed, it’s going to be full speed ahead.”

Stocks and Treasury yields declined after the figures. The Standard & Poor’s 500 Index dropped 0.9 percent to 1,582.7 at the close in New York. The yield on the benchmark 10-year note decreased to 1.63 percent from 1.67 percent late yesterday.

Orders, production

Details of the ISM’s factory index showed more producers and their customers reduced inventories in April than a month earlier. Along with leaner stockpiles, increases in measures of orders, a leading indicator of demand, and production show manufacturing may avoid further deterioration.

The median forecast for the ISM factory index called for a 50.5 reading. Estimates from 84 economists in the Bloomberg survey ranged from 49 to 53.

Other figures today showed manufacturing across the globe is also struggling. In China, the world’s second-largest economy, factories expanded at a weaker pace in April. The Purchasing Managers’ Index fell to 50.6 last month from 50.9.

A U.K. factory index showed manufacturing contracted for a third month. The gauge rose to 49.8 last month from 48.6, according to Markit Economics and the Chartered Institute of Purchasing and Supply.

Tenneco Inc.

Tenneco Inc., a maker of diesel-exhaust filters and mufflers, is seeing a “mixed global industry environment,” according to CEO Gregg Sherrill. The Lake Forest, Illinois-based company expects to benefit later this year from improving light-vehicle production in North America and overseas markets including China.

“With a continued weak global market and the significant inventory destocking taking place, we anticipate production to remain at low levels in the second quarter,” Sherrill said in an earnings conference call on April 29. “However, as inventory issues are worked through, we expect to see some volume improvements in the second half of the year.”

The ISM’s inventory index decreased to a four-month low while a gauge of customer stockpiles dropped to the weakest level since November.

“Inventories are in a fine position, albeit low, and ready for a build-up,” Bradley Holcomb, chairman of the ISM’s factory survey, said today on a conference call.

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