WASHINGTON – Manufacturing in the U.S. probably cooled in November as business demand slowed and disruptions from superstorm Sandy limited production, according to economists surveyed before a report today.
The Institute for Supply Management’s factory index fell to 51.5 from 51.7 in October, according to the median estimate of 75 economists surveyed by Bloomberg. A reading of 50 marks the dividing line between expansion and contraction. Other figures today may show construction spending increased in October.
Less corporate spending on equipment as lawmakers debate the nation’s budget, weaker orders from overseas and disturbances related to the biggest Atlantic storm ever to hit the U.S. are converging to slow manufacturing. A pickup in home construction as well as rebuilding in the wake of Sandy may offer the economy a lift as support from factories wanes.
“There is uncertainty from the fiscal cliff, Europe is still going down, and then you’ve got Sandy,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Housing is going to be a solid aspect for several years to come.”
The Tempe, Arizona-based ISM will release the report at 10 a.m. New York time. Estimates ranged from 49 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 in 2010.
Other reports today showed euro-area manufacturing kept contracting in November while factory output rose in China and Russia, underscoring the divergence of the global economic recovery.
Europe, China
Manufacturing output in the 17-nation euro area shrank for a 16th month, with a gauge of manufacturing rising to 46.2 from 45.4 in October. In China the Purchasing Managers’ Index climbed 50.6 and in Russia it expanded for a 14th month.
Recent U.S. regional reports show manufacturing, which accounts for about 12 percent of the U.S. economy, weakened last month. Factory activity in the New York area contracted in November for the fourth consecutive month as Sandy knocked out electrical power and limited activity, disrupting about 70 percent of businesses that were surveyed by the Federal Reserve. Output in the Philadelphia-area shrank for the sixth time in seven months.
Seven of 12 Fed districts reported “either slowing or outright contraction in manufacturing,” the central bank said last week in its Beige Book business survey, which reflected information collected before Nov. 14. The Cleveland, Richmond and St. Louis areas said business was positive.
Apart from the storm’s impact, uncertainty surrounding the so-called fiscal cliff of about $607 billion in automatic tax increases and spending cuts slated for 2013 if lawmakers fail to act is prompting businesses to curb investment. Five of 12 Fed districts expressed concern about next year’s outlook, partly due to the lack of clarity about the budget, the report said.
Business spending on equipment and software fell at a 2.7 percent annual rate in the third quarter, the first drop since mid-2009.
At the same time, there’s a risk overseas demand for U.S- made goods will slow further. The euro-area economy hasn’t expanded for a year, and China’s economic growth has slowed for seven straight quarters.
“Business levels are not bad,” Jerald Fishman, chief executive officer at chipmaker Analog Devices Inc., said on a Nov. 27 call with analysts. Still, “there’s so much uncertainty out there in Europe and the U.S.”
‘Standing still’
Fishman said that because of a lack of clarity on government tax policies, “people are just standing still and that impacts their capital spending budget.”
A healthier housing market could pick up some of the slack by bolstering demand for more durable goods, such as furniture, refrigerators, and building products. Economists project construction spending rose 0.5 percent in October, the sixth gain in seven months, according to survey median before the 10 a.m. report from the Commerce Department.
Investors remain upbeat about the industry. The Standard & Poor’s Supercomposite Homebuilding Index has surged 76.9 percent this year, outpacing a 12.6 percent gain for the broader S&P 500 gauge.
