WASHINGTON – Manufacturing in the U.S. expanded at a faster pace than forecast in February, reaching the highest level since June 2011 as factories boosted production to meet greater demand.
The Institute for Supply Management’s factory index advanced to 54.2 last month from 53.1 in January, the Tempe, Ariz.-based group said today. The figures exceeded the most optimistic forecast in a Bloomberg survey in which the median projection was 52.5. A reading greater than 50 signals expansion.
Orders expanded the most in almost two years, the report showed, as manufacturers such as Applied Materials Inc. emerged from an industry setback in the second half of 2012. Further production gains would complement a rebound in the housing market and help underpin the economy amid budget disputes in Washington.
“Things are starting to improve for manufacturing, and the improvements are starting to build on each other,” Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Mass., said before the report. “Inventory growth has turned the corner. Orders have picked up finally.”
“When you get decent orders, decent production, an inventory correction that’s complete and backlogs picking up, you’ve got the recipe for a period of much better growth,” he said.
Estimates for the ISM index from the 81 economists surveyed ranged from 50.5 to 54. The gauge averaged 51.7 in 2012 and 55.2 in 2011.
China manufacturing
Elsewhere, two Chinese manufacturing indexes showed a slower-than-estimated pace of expansion in February. The official Purchasing Managers’ Index was 50.1 in February, the weakest in five months and down from 50.4 in January, according to a report from the National Bureau of Statistics and China Federation of Logistics and Purchasing today in Beijing. A separate gauge from HSBC Holdings Plc and Markit Economics dropped to a four-month low of 50.4 from 52.3.
In the U.K., manufacturing unexpectedly shrank last month as orders plunged. A gauge of factory activity plunged to 47.9, compared with a revised 50.5 in January, Markit and the Chartered Institute of Purchasing and Supply said today in London.
Manufacturing in the euro region contracted for a 19th straight month. Markit’s index held in February at 47.9. While the gauge for Germany, the area’s largest economy, climbed to 50.3 from 49.8, Italy’s dropped to 45.8 from 47.8.
Production, orders
Today’s ISM report showed a measure of U.S. production increased to 57.6 from 53.6 in January. The new orders measure climbed to 57.8, the highest since April 2011, from 53.3, and the gauge of export orders advanced to 53.5, the highest since May 2012, from 50.5.
The index of prices paid rose to 61.5 from 56.5 last month.
The measure of orders waiting to be filled increased to 55 from 47.5. The inventory index was little changed at 51.5 after 51, while a gauge of customer stockpiles fell to 46.5 from 48.5. A measure of supplier deliveries decreased to 51.4 from 53.6.
The employment index dropped to 52.6 from 54 the prior month.
Recent regional reports show manufacturing, which accounts for about 12 percent of the U.S. economy, made gains last month. The Federal Reserve Bank of New York’s general economic index, which covers New York, northern New Jersey and southern Connecticut, unexpectedly expanded in February at the fastest pace in nine months. A report yesterday from MNI Chicago showed that business activity expanded in February by the most since March.
Investment in new equipment is at the root of the recent pickup in increased activity on factory floors. Orders for capital goods, excluding military gear and aircraft, have climbed 9.5 percent since October, the biggest three-month gain since 1993, according to Commerce Department figures released earlier this week.
Applied Materials, the largest producer of chipmaking equipment, forecast fiscal second-quarter sales that beat most estimates, indicating that some customers are expanding output on brisk demand for mobile devices.
Sales in the period will rise 15 percent to 25 percent from the prior quarter, the company said in a statement Feb. 13, indicating revenue of $1.81 billion to $1.97 billion. Analysts on average estimated sales of $1.81 billion, according to data compiled by Bloomberg.
“The momentum in the business is strong,” Michael Splinter, chief executive officer at the Santa Clara, Calif.-based company, said at a conference the following day. “Our display business is starting to come back. Orders are picking up there as well.”
Consumer spending
Consumer demand for motor vehicles is bolstering business for U.S. producers as well. Personal spending rose 0.2 percent in January after a 0.1 percent gain the prior month, Commerce Department figures showed today.
Cars and light trucks sold at a 15.2 million annual rate in January after 15.3 million a month earlier, according to Ward’s Automotive Group. November through January were the strongest three months of the auto industry in five years.
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