Manufacturing in U.S. expands at faster rate than forecast

WASHINGTON – Manufacturing expanded at a faster pace than projected in February, a sign the industry was beginning to overcome bad weather across much of the United States.

The Institute for Supply Management’s manufacturing index rose to 53.2 last month from 51.3 in January, the Tempe, Ariz.-based group reported Monday. Readings above 50 signal expansion. The median forecast of 81 economists surveyed by Bloomberg was 52.3.

A gain in orders showed companies were gaining confidence that demand will pick up from a weather-related lull that slowed the economy at the start of the year. The pace of manufacturing will depend on consumers’ willingness to spend, growth in overseas markets and the appetites of businesses to invest in new equipment.

“It’s been somewhat encouraging that despite the extremely harsh weather conditions we have had, manufacturing continues to grow,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit and the best forecaster of the ISM index over the past two years, according to data compiled by Bloomberg. “There’s still a sizable amount of pent-up demand in the consumer and corporate sectors.”

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Estimates in the Bloomberg survey ranged from 49.5 to 55. Manufacturing accounts for about 12 percent of the economy. The ISM’s factory gauge averaged 53.9 for all of last year.

Stocks held earlier losses after the report, tracking a global selloff in equities, as Russia’s military presence in Ukraine prompted investors to seek havens. The Standard & Poor’s 500 Index declined 0.7 percent to 1,845.95 at 10:57 a.m. in New York.

Consumer spending

Another report today showed consumer spending climbed more than forecast in January, reflecting the biggest increase in services in more than 12 years, as Americans began to enroll for health insurance. Household purchases, which account for almost 70 percent of the economy, rose 0.4 percent after a 0.1 percent gain the prior month that was smaller than previously estimated.

The ISM’s gauge of new orders increased to 54.5 from 51.2, while a measure of orders waiting to be filled rose to 52 from 48. The pickup in demand and backlogs points to a rebound in production, which may have been hampered by inclement weather. The group’s production index fell to 48.2, the weakest since May 2009, from 54.8. The 13.5-point slump in the production gauge in the last two months was the biggest since September-October 2008, when the economy was in a recession.

Rising stockpiles

The inventory index climbed to 52.5, the highest since October, from 44, while a gauge of customer stockpiles increased to 46.5 from 44.

“There’s possibly an inventory mix problem, where looking at the comments about logistics, clearly there was a problem in shipping,” Bradley Holcomb, chairman of the supply management group, said on a conference call with reporters. Companies’ inability to get the parts they need could lead to an increase in overall inventories and slow production, he said.

A measure of export orders decreased to 53.5, the lowest level since September, from 54.5. The employment index held at 52.3 in January. The index of prices paid was little changed at 60 after 60.5.

Data on manufacturing across the globe have been mixed. In China, a pair of factory gauges declined in February. The purchasing managers index from HSBC Holdings PLC and Markit Economics dropped to a seven-month low and signal contraction. A similar gauge from the Chinese government with a larger sample size was the weakest since June.

European manufacturing

European manufacturing expanded more in February than previously estimated, as a gauge of French factories rose to a five-month high. The index for the euro region unexpectedly rose to 53.2, compared with a prior reading of 53. The gauge was 54 in January, Markit Economics said Monday.

In the U.S., recent regional reports on the industry have been mixed. The Federal Reserve Bank of Philadelphia’s factory gauge dropped to minus 6.3 last month, the weakest reading in a year, from 9.4 in January. Business activity in the Chicago area accelerated unexpectedly, figures from the Institute for Supply Management-Chicago Inc. showed.

Boise Cascade Holdings LLC is among companies that have indicated a slowdown tied to winter weather. Below-average temperatures dominated east of the Rocky Mountains, most notably in the Midwest, Mid-Atlantic and Southeast U.S., according to the National Oceanic and Atmospheric Administration. “Numerous winter storms” affected the central and eastern regions of the U.S., the agency said.

‘Disruption days’

“We have had more disruption days in both manufacturing, in areas like Louisiana and the Southeast, and more disruption days in the distribution business than any time I can remember,” Thomas Carlile, Boise Cascade’s CEO, said on a Feb. 21 earnings call. At the same time, the 2014 outlook for plywood and lumber sales is improving, he said.

“When I’ve got the production manager in Alexandria, La., sending me photos of 5 inches of snow outside of his flagpole, that’s probably not a normal situation,” Carlile said. “We’re actually reasonably pleased with the tone considering the weather we’ve seen.”

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