WASHINGTON – Manufacturing in the U.S. expanded less than forecast in October as inventories shrank by the most in a year and production cooled.
The Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September, the Tempe, Ariz.-based group’s data showed Tuesday. A reading of 52 was the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between growth and contraction.
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A slowing global economy may be limiting demand for American-made goods, restraining production and the industry that’s paced the two-year-old recovery. The Federal Reserve, at the conclusion of its policy meeting tomorrow, may indicate its willingness to take additional measures to spur growth.
“Many businesses are still working to pare inventories and that has resulted in diminished demand for merchandise,” Richard DeKaser, a senior economist at The Parthenon Group in Boston, said before the report. “The factory sector is still showing the consequences of the softness during the first half of the year.”
Estimates for the manufacturing index from 85 economists ranged from 50.5 to 55. While 50 is the midway point between expansion and contraction in the industry, a reading above 42.5 generally indicates an expansion in the overall economy.
Stocks held earlier losses after the figures and on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout. The Standard & Poor’s 500 Index dropped 2.1 percent to 1,227.24 at 10:20 a.m. in New York.
The U.S. factory figures add to other evidence today that global manufacturing cooled last month. A Chinese factory index dropped to the lowest level since February 2009, while a U.K. manufacturing gauge declined to a 28-month low.
China, U.K. Manufacturing
The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. The U.K. measure, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, dropped to 47.4 from a revised 50.8 in September, according to an e-mailed report in London today.
Tuesday’s ISM report on the U.S. showed the production index dropped to 50.1 in October, the second-lowest since May 2009, from 51.2 in September.
The inventory index declined to 46.7, the lowest since June 2010, from 52, while a gauge of customer stockpiles dropped to a five-month low.
Export Orders
The group’s gauge of export orders decreased to 50 in October, the lowest since June 2009, from 53.5.
The new orders measure still climbed to a six-month high of 52.4 from 49.6.
The index of prices paid dropped to 41, the first time costs decreased since May 2009, from 56
The employment index was little changed at 53.5 after 53.8. Manufacturing payrolls rose by 2,000 last month after a 13,000 decrease, according to a survey of economists surveyed by Bloomberg before Labor Department data due Nov. 4. Total payrolls rose by 95,000, the survey median shows.
Federal Reserve officials begin a two-day meeting Tuesday to determine whether additional steps, including another round of securities purchases or changes to public communication, are needed to spur growth. In August and September, the central bank used unconventional tools aimed at lowering borrowing costs.
Appliances Demand
Benton Harbor, Mich.-based Whirlpool Corp., the world’s largest maker of household appliances, last week said it will cut more than 5,000 jobs and reduce capacity by six million units after lowering its earnings targets as consumers rein in spending. Whirlpool said reductions in Europe and North America account for about 10 percent of all employees in those regions.
“During the quarter, we experienced weaker than expected global industry demand and elevated material costs,” CEO Jeff M. Fettig said in the statement. “Our results were negatively impacted by recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs.”
Recent regional factory surveys were mixed. New York-region factories shrank for a fifth straight month in October, while manufacturing in the Philadelphia area expanded after two months of contraction, figures from the Fed showed. A report from ISM-Chicago Inc. Monday showed business activity grew last month at about the same pace as in September.
Regional Surveys
Recent regional factory surveys were mixed. New York-region factories shrank for a fifth straight month in October, while manufacturing in the Philadelphia area expanded after two months of contraction, figures from the Fed showed. Activity in the Richmond area shrank for a fourth month, while factories in Dallas expanded, Fed figures showed.
A Commerce Department report last week showed orders for durable goods other than transportation gear rose in September by the most in six months. Demand for all durable goods fell, reflecting fewer orders for commercial aircraft, the report said.
Corporate spending on equipment and software climbed at a 17.4 percent pace in the third quarter, the most in a year, as the economy grew at a 2.5 percent pace, the Commerce Department reported last week.
A rush to qualify for a government tax incentive may be contributing to the increase in business investment. The Obama administration’s compromise allows companies to depreciate 100 percent of investment in capital outlays in 2011 and 50 percent in 2012.
